Using ABLE Programs and Special Needs Trusts to Help Special Needs Clients. Mary Alice Jackson Explains

The Social Security Act covers the needs of retirees, individuals with disabilities and the elderly. For persons with disabilities, the Supplemental Security Income program (SSI) provides monthly income for individuals who have never worked, or who never paid enough into Social Security, to receive Social Security Disability Insurance benefits (SSDI).  Medicaid provides essential medical benefits.  Both SSI and Medicaid are “means-tested” and require that applicants meet medical, income and asset rules.  In addition, there are strict rules for applicants who give money away to become eligible for these benefits.   Frequently, clients confuse the regulations in the Internal Revenue Code (IRC) with SSI/Medicaid rules.  What is permissible under the IRC Code may create ineligibility for SSI/Medicaid applicants.  For instance, the IRC permits taxpayers to give away up to $14,000 per year each to as many people as they choose.  However, both SSI and Medicaid will impose penalties on applicants who make such gifts.  Now, there is a new program that promotes independence for persons with disabilities, but also overlaps IRC and SSI/Medicaid rules. Austin, TX attorney Mary Alice Jackson explains how these conflicts may be avoided in this report.

The SSI and Medicaid resource limit is $2,000 (excluding a home, car and a few other items). This small amount often results in individuals with disabilities living a life of poverty.  But instead of spending down excess assets, these monies can be used to fund a “special needs trust” (SNT). A trust is a contract with certain terms and conditions, and there are many different types of trusts.  An SNT can accept excess monies, and the funds in the SNT are not counted as assets against the $2,000 limit.  Thus, there is no disqualification from public benefits, and there are funds that can be used for all kinds of needs the individual with disabilities may have.   An SNT provides that an individual with a disability or a third party—a family member, friend, or charitable source —contributes money for the sole benefit of the person with the disability to supplement the beneficiary’s special needs.  Done correctly, the trust assets are not counted when eligibility determinations are made for for public benefit programs. For example, a child for whom a trust has been established is eligible to apply for Supplemental Security Income and Medicaid at age eighteen, and both programs have a $2,000 asset limit for eligibility. If an SNT has been created and the individual applicant has more than $2,000 from earnings or gifts, the excess money can be placed in an SNT and eligibility problems are avoided.


 Mary Alice Jackson

Mary Alice Jackson

Jackson points out that creating and funding an SNT is perfectly legal under SSA regulations and is a great planning option for many individuals.  However, there are two important downsides to the benefit of an SNT:  the beneficiary is dependent on the “trustee,” who legally owns the trust money, and can’t compel the trustee to make any distributions.  For example, a device might be invented that would allow someone who cannot speak to speak using new technology. The SNT funds could pay for such a device. The SNT could also pay for the services of a home health worker to be available daily.  The beneficiary may request these items, but the trustee can refuse the expenditures based on their subjective assessment of the beneficiary’s needs and the available trust assets.  The SNT gives no autonomy to the beneficiary to manage his or her own money,whether or not he or she has mental capacity.   

The newest tool in special needs planning is an “ABLE” account. ABLE stands for “Achieving a Better Life Experience,”, Jackson says. An individual with a disability can have only one ABLE account.  . One difference between an ABLE account and an SNT is that there is no document establishing it. An ABLE account is simply established online with a state agency which invests the funds and makes disbursements.  The account does not have to be established in the state in which a beneficiary with special needs resides. The account investment choices can be reviewed twice a year. In order to spend the money, one sends in a request to the state, often to the comptroller’s office, and the state sends a check. The state does not follow how the money is spent, but the Social Security Administration will care.

Jackson points out that ABLE accounts are another place where state and federal rules may collide. The federal solution was to add a new §529 to the Internal Revenue Code. §529 covers accounts to collect money for education. §529A covers ABLE accounts. “In every state of which I’m aware, it’s the same agency that’s managing both sides of these accounts.” As to who makes the requests for ABLE funds, it is a matter of the beneficiary’s capacity. Beneficiaries with capacity may make their own requests and can spend the money themselves on “qualifying disability expenses,” or QDEs. QDEs include education, technology, companions, assistive devices, travel, clothing, etc. Realistically, Jackson says, it can be almost anything that is of benefit to the person for whom the account was established. If an ABLE beneficiary does not have the capacity to work with money, the request must be made by a parent, legal guardian or someone with an appropriate power of attorney.

There are no restrictions on who can give money to an ABLE account. The limit is that donations may not exceed $14,000 in a calendar year. The $14,000 figure is also tied to the Internal Revenue Code: It is the amount an individual can give away in a year without having to file a gift tax return. Should the amount that can be given annually increase from $14,000, the ABLE rule will change as well.  If the balance of an ABLE account exceeds $100,000, an SSI recipient’s benefits will be suspended, not terminated, until the balance falls below $100,000 again.  

Planning for a person with special needs may involve either or both an SNT and an ABLE account. The two are not  mutually exclusive. For example, someone who can work may want to get a job and put money into an ABLE account and save towards purchasing a car. That person may also have an SNT, funded with other people’s money, as a place for relatives to leave money when they die. One difference between the two is that if an SNT is funded by people other than the beneficiary (known as a “third party” SNT), Medicaid has no claim on the money when the beneficiary passes away.  There is a Medicaid claim when the SNT was funded only with money that was owned by the beneficiary (a “first party” SNT).  Unfortunately, an ABLE account will be liable to repay Medicaid when the beneficiary passes away regardless of who contributed the funds to the ABLE account over the years.  

The area of special needs planning is complex. Interested parties might want to check with Special Needs Alliance website to locate attorneys skilled in this area of practice.

Mary Alice Jackson is the sole shareholder in the firm of Mary Alice Jackson, P.C. in Austin, Texas. Her practice focuses on elder law and special needs planning, including estate planning for individuals with special needs and their families. She is a Fellow of the National Academy of Elder Law Attorneys.   She is also a board member of the Special Needs Alliance and serves on its Public Policy Committee, which identifies priorities for advocacy on the state and federal levels. The Settlement Channel is a featured network of Sequence Media Group.

Posted on August 8, 2017 .

DOL Fiduciary Deadline is coming, what compliance is essential?

The decision earlier this week by Labor Secretary Acosta to not further delay the implementation of the DOL Fiduciary standards on June 9th. This is creating a huge push for compliance guidelines for annuity sales staff, annuity brokers and structured settlement experts. Ok, maybe not the structured settlement experts, they are exempted from just about all suitability and regulatory oversight other annuity purveyors are being held to. That said, these standards will very likely become the defacto expectation regarding duty of care to clients and structured settlement professionals would be wise to immediately adapt their business practices to adhere to them. 

 The future. Photo Credit Shutterstock

The future. Photo Credit Shutterstock

This morning ThinkAdvisor published what I think is a very handy check list of dates, guidelines and duties related to how and where this new Fiduciary Standard is being applied. It is as follows:

  1. Applies to IRAs: The rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
  2. Best interest standard starts June 9: Beginning June 9, financial institutions and advisors to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
  3. BICE compliance starts Jan. 1: The extensive compliance requirements of the best interest contract exemption, which would apply to non-level fee products, are not in force until Jan. 1, 2018.
  4. DOL expects changes by Jan. 1: During the transition period (June 9-Jan. 1), Labor will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should reshape the rule.
  5. Proprietary products with commissions permitted: During the transition period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
  6. Need policies and procedures: Labor expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
  7. Robo-advisors can rely on BICE: Robo-advisors may rely on the BICE during the transition period to ensure compliance with the rule.
  8.  Investment advice narrowly defined: Investment advice, for purposes of the rule, does not include plan information or general financial, investment and retirement information.
  9. Can rely on written representations from intermediaries: The rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 million.
  10. DOL will focus on compliance over enforcement: Labor says it will prioritize compliance over enforcement during the transition period so long as firms work diligently and in good faith to comply with the rule. ( Source:, published 5/26/17)

In short, we are entering a world where a ton of annuity sales used in IRA roll overs by the Fixed Index Annuity markets is being swept into a standard that requires full disclosure of commissions, conflicts and making sure the recommendation is demonstrably in the best interest of the client. There are a lot of effective compliance tools and courses developed for this transition, I strongly suggest structured settlement professionals and structured settlement planners adopt them on the same schedule and be ahead of the curve instead of behind it. 

Posted on May 26, 2017 and filed under Settlement Expert.

Structured Settlement reform called for. Opinion article in The Hill

Earlier this week an opinion segment was published in the widely read Washington news entity, The Hill, that brought up the issue of Structured Settlement reform and looked once again at the AIG class action lawsuit and issues related to transparency, commissions and business practices in the light of how things are done in comparable financial transactions. 

 Credit: The Hill

Credit: The Hill

Authored by trial lawyer and former structured settlement planner, Dick Risk, it is entitled "Why Congress needs to reform structured settlements" and it examines crucial issues that are rarely discussed by trial lawyers, Congress and structured settlement professionals. For anyone in the structured settlement profession Dick Risk is a familiar name as a determined advocate for the rights of plaintiffs in settlement to select the adviser, planner and funding company that set's up their structured settlement. This has often brought him into sharp conflict with NSSTA (National Structured Settlement Trade Association) leadership and members, as the type of transparency and plaintiff control Dick advocates directly threaten's the business model upon which the structured settlement profession largely exists and operated on over the last 40 years. 

Further, Dick Risk late in his career went to law school, obtained membership in the bar and commenced lawsuits against the industry and these practices. The most notable being one against The Hartford Insurance Group regarding an undisclosed commission arrangement they had as part of their claims practice. Then more recently Attorney Risk is one of the plaintiff attorney's at the center of the AIG class action filed earlier this year. As a result of his advocacy in this area, many would tend to dismiss this article and it's points as hopelessly slanted given the back ground and career of the author. 

I believe ignoring or trying to minimize this article would be a huge mistake for trial lawyers, but even more of a mistake for the leadership of the Structured Settlement profession as the issues he highlights are at the center of a wave of change that is going to soon overwhelm the structured settlement planning profession. 

While most will want to "shoot the messenger" I am strongly of the opinion that much, if not all of what is being proposed here is totally consistent with the broader trends toward a fiduciary standard, full disclosure to clients and the BICE, Best Interest Contract Exemption, standard that is now being applied to fixed index annuity sales under DOL standards effective June 9, 2017. Just yesterday the Secretary of Labor essentially conceded that it would be disruptive to further delay the implementation of the fiduciary standard of care when dealing with any retirement accounts. This decision came after an avalanche of opposition to the rule from the annuity industry to rules that require them to clearly disclose all compensation, state any conflicts and make clear that the recommendation is in the best interest of the client. Clearly the tide has shifted as such a lobby effort in the past inside a Republican administration would have produced the desired results that life companies are use to getting. 

My questions is how could any reasonable person be opposed to such a standard being applied to the planning of a structured settlement for a badly injured, disabled or impaired individual? Well, the reality is that standard is not applied currently and if you look at the litigation mentioned in the article, it is clear that this important transaction is not even governed using the NAIC standards for suitability. However, there is a sea change coming and articles such as this one by Attorney Risk are just the first warning bells to both trial lawyers and planners that a fiduciary standard eventually needs to be applied on these irrevocable annuity programs. However, as the article makes clear, until the business relationships that prevent trial lawyers and plaintiffs from having the sole choice of who their settlement planner is, what life company they use for the annuity and the control of casualty companies in the decision is removed, these changes simply won't arrive any time in the near future. 

I'll be covering in greater detail in coming posts some of the current conflicts and issues that are stripping away the rights of plaintiffs to control their financial futures, largely due to troubling trends in some federal cases that take all choice of planning away from the client at settlement and during the life of their annuity. It is up to trial lawyers and their state and national organizations to raise the profile of this issue so that a contemporary and transparent level of diligence is required on all structured settlements and that plaintiffs are sufficiently empowered as to their choice of advisers and companies they wish to work with when putting these essential annuity programs into place.