Estate and benefits planning is a complicated topic for any client. There is no shortage of instruments that can be used to distribute assets to chosen family members while still providing income streams to the individual—IRAs, trusts, wills, joint accounts, to name several. But this planning landscape becomes imminently more difficult when the client either has a disability himself or herself or his or her chosen family members and friends include individuals with disabilities. A disability within a family creates difficult immediate and future complexities: how do we provide for this individual now; how do we provide for this individual after we are retired and no longer earning money; how do we provide for this individual after we pass on?
For example, a retirement-ready client seeking help with his or her estate plan and retirement benefits may also be continuing to provide care for his or her adult child with a disability. However, strict asset and income rules for Medicaid and Supplemental Security Income (SSI) mean that outright gifts to the individual with a disability either during or after the client’s death create eligibility problems for the individual with a disability. And loss of eligibility for these programs means loss of income streams that are crucial for the individual’s continued health after the retirement- ready client can no longer provide care.
Simultaneously, the benefits provided by these programs are clearly defined, and in the case of SSI, arguably inadequate: fairly generous but not an unlimited set of medical benefits from Medicaid and about $733 per month for SSI. As such, clients may wish to plan their estates around these asset limits not only for their own benefit if they are disabled themselves but also for or for the benefit of a child, grandchild, or even friend with a disability.
Lawyers have helped to address this income gap with various legal tools, including Medicaid Qualifying Trusts (which are actually Medicaid disqualifying trusts), individual special needs trusts, pooled special needs trusts, and third-party supplemental needs trusts. Another tool was added on December 19, 2014, when President Obama signed into law the Achieving Better Life Experience (ABLE) Act. Modeled after the IRS’s 529 accounts for tax-preferred tuition savings, the new ABLE accounts offer the same tax-preferred savings to individuals with disabilities to save cash-only assets, while still maintaining eligibility for SSI and Medicaid. These ABLE Act accounts are the newest additions to the disability planner’s toolbox. Because of the various limitations on the preceding disability planning instruments, the ABLE accounts were long awaited. Yet, the legislative process resulted in ABLE accounts that are now more limited than was first envisioned. As a result, these accounts are only one tool among the old standbys.
This article provides a very basic overview of the new ABLE accounts and the role they play in assisting elderly clients in planning for their own disabilities or for the disability of a family member. Part II provides a brief background on the requirements of traditional disability planning devices, including individual special needs trusts, pooled special needs trusts, and third-party supplemental needs trusts. Part III provides an overview of the ABLE Act in terms of its general restrictions and parameters; its tax provisions, including monitoring; its Medicaid payback provision and its limits; and when Minnesota residents can expect to start using ABLE accounts. Part IV finishes with an analysis of the new ABLE Act accounts, how the Act compares with the traditional disability planning tools such as special and supplemental needs trusts, and what spot the Act occupies in the estate planning toolbox, ultimately concluding that the structure of the new ABLE accounts is restrictive enough that ABLE accounts do not serve as replacements for the traditional disability planning tools, but that ABLE accounts’ tax savings may be worth taking advantage of in certain circumstances.