Social Security Disability Income (SSDI)

ABLE Accounts for People with Special Needs

Posted on February 9, 2017 by Jim Koewler — No Comments ↓

ABLE Accounts seem to be here to stay.

ABLE stands for Achieving a Better Life Experience. ABLE Accounts are financial accounts through which someone with special needs can spend money for many things that will enhance the person’s quality of life.

In Ohio, where I practice, they are called STABLE accounts. The ST stands for State Treasurer. (A politician can’t help but put his/her name on something.) Oddly, Ohio is one of the leaders in the U.S. in making ABLE accounts available. Ohio is the first state to make them available

These accounts are “special” accounts for people who have disabilities. They receive favorable tax treatment and will not (in most instances) impact the person’s government income (SSI) and health (Medicaid) benefits. In exchange for the tax treatment and lack of impact on government benefits, these accounts will have a number of limitations, so the politicians’ words “enhance the quality of life” and the “better life experience” are bits of puffery.

To be sure, ABLE Accounts will be useful. In fact, there is one particular use of these accounts that is quite a big step forward. Still, despite the highfalutin words of Congress, an ABLE account is not a panacea.

I’ve discussed ABLE accounts before. The February 2, 2015 installment described the federal legislation that created the ABLE account. The April 17, 2015 installment discussed how an ABLE account can be used to help qualify for SSI (Supplemental Security Income) and for Medicaid.

THE BASICS

The person who owns the ABLE account must be disabled or have been disabled before age 26. There is talk of raising the age, but nothing has happened yet.

The person can have only one ABLE account. Not one per state per person – only one per person, nationwide.

Anyone can contribute to an ABLE account. The total of ALL contributions cannot exceed $14,000 per year. This number is pegged to the amount of a gift that does not trigger the requirement to file a gift tax return. As the gift tax exclusion goes up with inflation, so will the ABLE account maximum contribution amount. Unlike the gift tax exclusion, however, the ABLE account deposit isn’t on a per person basis. The maximum is per account per year, not per donor to the account. For example, if Dad deposits $14,000 into child’s ABLE account in January 2017, no one can give anything more to the account until 2018. Deposits are NOT tax deductible, though.

If an ABLE account holds more than $100,000, SSI will be shut off until the value falls back below $100,000. Medicaid will not be shut off, though. With a maximum contribution of $14,000 (unless interest rates really jump or the stock market takes off,) it will be seven years before any ABLE account gets to that amount.

Whatever is left in the ABLE account when the person dies will go to pay Medicaid first (up to the amount that Medicaid spent on the person.) If the person relies on Medicaid for health costs, he/she should not allow the ABLE account to accumulate.

Money in a ABLE account can grow tax-free. (It’s sort of like a Roth IRA that way. The initial deposit isn’t pre-tax money, but the growth of the money in the account is tax-favored.) In fact, if the contents of the ABLE account are spent on disability-related expenses, the growth isn’t taxed. If, though, ABLE funds are used to pay some expense that is NOT disability-related, there’s a 10% penalty on that expenditure. It’s important to take great care when spending ABLE funds.

Ohio’s STABLE account can be invested in mutual funds or in a checking account. There are different mutual fund choices to allow for aggressive investors or cautious investors. (Remember that the ABLE account is a Medicaid-payback account, so these mutual fund options are attractive only to someone who is sure that he/she will NOT rely on Medicaid for care. I suspect that only a few people who are eligible to open ABLE accounts can fairly expect not to use Medicaid.) Because of the likelihood that many or even most people may come to depend on Medicaid during their lifetimes (becuase of the likelihood of people needing long term care,) I cannot stress how bad an idea it seems to allow an ABLE account to accumulate above one’s near-term needs. (Use, if possible, a Wholly Discretionary Trust if trying to allow accumulation of the money.

An ABLE Account is going to be almost as easy to use as a checking account. It can have a debit card as well. Because expenditures from the ABLE account lose their protection if not made for “disability related expenses,” avoid the debit card. The debit card is a mistake waiting to happen.

THE MOST IMPORTANT USE OF AN ABLE ACCOUNT

An ABLE account can be used to pay for housing.

That may not seem important, but it is.

Supplemental Security Income (SSI) is the source of income for a great number of people who are disabled before age 26 (the age by which someone must be disabled to qualified for an ABLE account.) An SSI recipient over age 18 can have his/her payments be reduced if the recipient receives help paying for housing. That reduction can be up to a third of the SSI payment that the person could otherwise receive.

People who are disabled as children tend to live with Mom and Dad for most or all of their lives. Mom and Dad may be well to do, living in an expensive house. The fair market rent to live in an expensive house can easily exceed one third of the maximum SSI payment, $245. (The maximum SSI payment for 2017 is $735.) For that matter, the fair market rent to live in an expensive house can easily exceed the entire SSI maximum of $735. The SSI recipient doesn’t have enough SSI income to pay fair market rent, so the SSI payment gets reduced.

Mom and Dad (or anyone else, for that matter) can place enough money into an ABLE account (as long as the total deposits during the year don’t exceed $14,000) to allow the child to pay his/her fair share of the monthly cost of the house. Then, the child/ABLE account beneficiary pays money out of the ABLE account to pay Mom and Dad for housing.

(Having the disabled person pay fair share of housing avoids tax issues while payment of “rent” runs into those tax issues. Receiving reimbursement for the fair share of housing doesn’t create income. Receiving rent creates income. That rental income can be offset by the cost of keeping up the house, but it still creates a great deal of tax recordkeeping. Collecting only the fair share of costs doesn’t create an income tax issue as long as documentation of the total cost is checked occasionally and the fair share gets adjusted when someone moves out of the house, such as a sibling moving out for college. Despite the ease of the fair share method, when calculating an SSI reduction, the Social Security Administration uses the fair market value approach.)

There are plenty of other disability-related expense that are eligible to be paid by a Wholly Discretionary. An ABLE account’s ability to pay for housing and remove the possible loss of SSI income is, in my mind, the single best use of an ABLE account.

Ohio Medicaid changes “Aged Blind Disabled” Eligibility

Posted on April 28, 2016 by Jim Koewler — No Comments ↓

Ohio Medicaid will change its rules on who can participate in the Medicaid Aged, Blind, and Disabled (“ABD”) program. The change will take effect in July 2016 for new applicants and will take effect with the annual renewals for existing Medicaid enrollees starting in January 2017. (The dates are subject to federal approval.) Ohio’s aim is to spend less on Medicaid. (It is a HUGE part of the state budget.)

Under federal Medicaid law, states can choose from two different ABD eligibility systems (meaning that the states can choose from two different SPENDING systems for their ABD programs.) The Ohio Department of Medicaid and the Ohio Department of Health Transformation, with a supporting change in the law by the state legislature, will change Ohio’s ABD Medicaid program from following section 209(b) of the federal Medicaid law to following section 1634 of the federal Medicaid law. Under the 209(b) system (the one that Ohio is leaving,) the states can make certain of their own choices on who is eligible for ABD coverage. Under the 1634 system (the one into which Ohio is moving,) the states must follow federal guidelines on eligibility.

The biggest differences between most states’ (including Ohio’s) 209(b) eligibility rules and the federal rules were in financial eligibility. States that followed 209(b) could have limits on income and assets that were tighter than the federal standards. That gave the appearance of keeping more people off of Medicaid ABD coverage than federal rules would have allowed.

Ohio’s rules under its 209(b) sy(tem (the old system) allowed people who had medical expenses to reduce their countable income by the amount of those medical expenses. This is called a “monthly spend down.” That spend down measurement allowed some people who had too much income “back” into Medicaid coverage. (A future installment will discuss the spend down in more detail.) The new system (under section 1634) will not allow spend downs to reduce countable income.

People with too much income won’t be left without coverage. People who have too much income to qualify for Ohio’s ABD Medicaid will be eligible for private insurance under the Affordable Care Act. Most anyone who would have qualified for ABD coverage through a spend down under Ohio’s old system will probably qualify for a highly subsidized, cost-controlled insurance policy through HealthCare.gov.

Many states followed 209(b) before the Affordable Care Act and its subsidy and cost control requirements made commercial policies affordable to more people. Many of those states have made the switch to 1634 since the Affordable Care Act has been implemented. Ohio is now following that trend.

In the installments ahead, we will discuss some of the details of this switch.

Income for People with Special Needs

Posted on February 26, 2015 by Jim Koewler — No Comments ↓

Everyone needs income to support themselves and their needs. People with special needs may not be able to generate enough income through work or may not be able to work at all. For someone who cannot work to support themselves (and who is not yet eligible for Social Security retirement benefits,) the source(s) of income might have certain restrictions.

Let’s start with the no-restrictions income. If anyone (special needs or not) has enough invested money to generate enough income to support their needs and their lifestyle, no other sources of income are needed. (Yes, this means rich people.) These people do not need to worry (not at this time, anyway) about special needs law and protection of their income. They’ve got investment risk but not a special needs law problem

People who aren’t quite so rich may need to draw down their invested assets to keep up with their necessary expenditures. These people need to project whether how long their assets will last. People like this (who need to use some of their assets to support themselves) may want to consult an attorney who practices in special needs to see if government program (or maybe charitable programs) can help their assets last.

People who have enough of a work history (during which they paid into the Social Security system) should be eligible for Social Security Disability Income (SSDI.) These are people who may have suffered a debilitating accident or may have some sort of disease that affects people in middle age, such as MS or ALS. (Remember, to get SSDI, you have to have significant work history and not yet have reached retirement age.) Their SSDI does not have restrictions (except for people who become ineligible for SSDI by working despite their disability and, as a result, making more than a minimal income.) SSDI payment may or may not be enough to support the disabled person’s needs. If not, then the government and/or charitable benefits available to special needs people may become necessary.

People who do not have enough of a work history may need Supplemental Security Income (SSI.) SSI is not available to people who have assets above $2,000. That’s not much. People who have assets over $2,000 can spend some of their assets or can put the “extra” money into an account that the SSI rules don’t count as the person’s assets. A Special Needs Trust or an ABLE account (discussed in my blog post of February 5, 2015) might be appropriate, for example. In addition, other sources of income or of housing support, could reduce the person’s SSI each month.

A special needs person must have either many valuable assets or an income stream (or some combination) to sustain themselves. Advice from a special needs attorney can help sort out and get the maximum benefits of the person’s assets and income stream.