Today’s blog post continues the series about Special Needs Law. The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs. The blog post on February 5, 2015 discussed hidden problems with the new ABLE accounts. The blog post on February 26, 2015 discussed sources of income for people with special needs. The blog post on March 5, 2015 discussed medical insurance for people with special needs. The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.) The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income. The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid. The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny. The blog post on April 9, 2015 discussed how a Pooled Trust can help shelter excess resources from SSI and Medicaid scrutiny.
Today’s post discusses how an ABLE (Achieving a Better Life Experience) account can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.
I first discussed ABLE accounts in my blog post of February 4, 2015 shortly after the law creating them was passed. That blog post focused on the need to control the amount of money that goes into an ABLE account from other people, like the parents or grandparents of the person with special needs, for example (so-called “third-party money.”) Today’s blog post will focus on the usefulness of an ABLE account as a place to put first-party money (, money that belongs to the person with special needs.)
NOTE: ABLE accounts are not yet available. The necessary law has passed Congress and received President Obama’s signature. The U.S. Treasury Department must still issue implementing regulations, and the various states must approve them in each state. (The state’s do most of the work on Medicaid, so their cooperation on the interface between ABLE accounts and Medicaid is necessary.) Despite their not being available at this time, I am discussing ABLE accounts this week because, for editorial purposes, this topic fits in with the series currently underway about qualifying for SSI and Medicaid for people with special needs.
For purposes of placing “excess money” somewhere that it won’t make a person with special needs too “rich” to receive Supplemental Security Income (SSI) and/or Medicaid for long term care, an ABLE account has the same effect as a stand-alone Special Needs Trust (discussed in the blog post of April 2, 2015) and a Pooled Trust (discussed in the blog post of April 9, 2015.)
A person with special needs who has excess resources will be able to place assets into an ABLE account without being penalized by the Social Security Administration or Medicaid for giving away assets. An ABLE account can only received $14,000 in any one year. A person with special needs who has limited assets may need only to make an ABLE account deposit to remove excess resources from being counted against them for SSI and Medicaid eligibility. For someone with more assets, an ABLE account may be part of the plan but probably not the only answer. (A person can have only one ABLE account, so there’s no gaming the system to protect more money by creating multiple accounts.)
BIG LIMITATION: Under the recently passed law, ABLE accounts are available only to people with special needs whose disability started before the age of 26.
Background: To understand the importance of ABLE accounts, just like the importance of individual Special Needs Trusts and Pooled Trusts, one must remember how Social Security and Medicaid treat someone who has given away money to become financially eligible. (If you read my blogs every week, this next part will seem very repetitive because the background info is the same for individual Special Needs Trusts, Pooled Trusts, and ABLE accounts. I am repeating it here because I don’t want a first time reader or someone looking at this blog in the archive to have to go find the background reasoning in a prior installment. Also, if you read my blog every week, you must have insomnia badly.)
As we’ve discussed in prior installments, both the Supplemental Security Income program (the Social Security program for people who are disabled but don’t have sufficient work history to qualify for Social Security Disability Income) and the Medicaid program (health insurance for poor people) are “means tested.” Accordingly, people who have the financial means to pay for themselves are not eligible for SSI or Medicaid. Because, for many people. there is a very high emotional cost (and sometimes a care cost) in allowing all of their life savings to be spent away, people look for a way to protect some of their assets while still qualifying for SSI and Medicaid. Giving money (or other assets) to a relative, a trusted friend, or a trust helps protect the assets given away, but the gifts can make the applicant ineligible for SSI and Medicaid or trigger limited Medicaid coverage for a time.
That ineligibility for, or restrictions on, SSI and/or Medicaid would create a problem for many people with special needs. They often need the SSI income and the Medicaid health insurance right away. At the same time, they want the ability to get some personal items or entertainment that they wouldn’t be able to afford if all they had were SSI income and Medicaid coverage, so they would like to find a way to “keep” some of their savings.
An ABLE account, like a Special Needs Trust or a Pooled Trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets. Someone who needs SSI and Medicaid but who has too much money to qualify can put up to $14,000 of the excess money into an ABLE account without getting a penalty of ineligibility or restricted coverage.
The differences between an ABLE account (as I expect or hope them to be implemented) and an individual Special Needs Trust or a Pooled is the apparent ease of use of the ABLE account as compared to the trusts.
Money from an ABLE account can be used for education, and/or medical prevention and wellness services. (Expenditures from a stand-alone Special Needs Trust or a Pooled Trust for such services effectively reduce government benefits, but these expenditures from an ABLE account should not impact government benefits.) In addition, the ABLE account can pay for transportation, assistive technologies, personal support services, financial management and administration, oversight, monitoring, funeral and burial expenses, and legal fees. So, the contents in an ABLE account cannot be used for as many different types of purchases as the contents of an individual Special Needs Trust or a Pooled Trust.
Also, at least at this point, it’s possible that an ABLE account won’t need a person to act as go-between for the cash in the account and the actual expenditure. ABLE accounts may give the person with special needs more direct control over the assets in the account than the person has over the assets in a Special Needs Trust or a Pooled Trust. The limitations on the types of allowed expenditures may allow some more direct involvement by the account holder (, the person with special needs.) Of course, the implementing regulations might create a go-between mechanism to prevent the account holder’s receipt of cash which could then cause an problem with SSI eligibility for having excess income.
Like an individual Special Needs Trust and a Pooled Trust, an ABLE account has a payback requirement. When the ABLE account holder (the person with special needs) dies, the account must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary up to the amount left in the account. (If the contents of the account are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates. If the Medicaid “debt” is equal to or greater than the ABLE account balance, then Medicaid gets it all.) If the account holder uses the entire contents of his or her ABLE account, then Medicaid gets nothing. That’s okay. The person with special needs was were able to make maximum use of his or her SSI benefits, his or her Medicaid benefits, and his or her own assets.
As mentioned above, an ABLE account can accept up to $14,000 per year. (That amount may go up with inflation just like the gift tax exemption goes up every few years.) For the purpose of having few enough assets to qualify for SSI and Medicaid, the annual limitation isn’t an issue. Someone with special needs is trying to qualify for SSI and Medicaid right now. Once that person qualifies, annual income must be controlled to keep eligibility. That control on income probably prevents the person from accumulating enough money in any later year to make any new deposit into an ABLE account or at least from making a large deposit. Unless someone with special needs has an unexpected influx of money (like an inheritance, or an accident settlement, or a lottery win,) only the initial ABLE account deposit is likely to be important to SSI or Medicaid eligibility.
While an ABLE account can legally accept deposits from anyone (like a parent or grandparent, for example,) the payback requirement creates a disincentive for any deposits of third-party money. (Remember, money that never belonged to the person with special needs isn’t subject to a payback requirement. So, putting any third-party at risk of being paid to Medicaid upon the death of the intended beneficiary seems like a waste of money.)
Also, because the ABLE account will be a bank account or a brokerage/investment account and because of the annual $14,000 limitation on deposits, the ABLE account cannot accept real estate. This is not a place to protect a home for the person with special needs.
In conclusion, if a person with special needs must shed some assets to qualify for SSI or Medicaid, an ABLE account (at least as set up in the law) can help shield a certain amount of money from being counted. The ABLE account may be only part of the asset-protection strategy, but its apparent ease of use may prove valuable for expenditures over many years – in addition to the benefit of helping the account holder achieve SSI and Medicaid eligibility.