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.
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.