When an individual with disabilities needs the primary support that’s available through means-tested benefits such as Medicaid Long Term Services and Supports (MLTSS) or SSI or HUD housing, having excess resources creates a barrier to eligibility. First party Special Needs Trusts for sole benefit of the disabled individual are often the strategy of choice, as the disabled individual can transfer his/her excess resources into the Trust prior to age 65 and thereby preserve his/her eligibility. Certain individuals with disabilities may find that ABLE accounts are a better alternative for certain circumstances. Examples could be small inheritances, very small personal injury settlements, leftover childhood assets at age 18, or accumulations of earnings from employment.
The trust is then used for supplemental needs. This strategy does come with certain restrictions. One is that resources cannot be transferred without penalty into an SNT after 65. Another is the requirement in New Jersey is to give the State advance notice of any single distribution in excess of $5,000. Other issues include: the beneficiary cannot have direct access to the trust (including debit cards); only the resources of the disabled person can be added to the trust; if the trust pays for housing, other benefits like SSI will be diminished; there can only be the one beneficiary during the lifetime of the initial beneficiary; and upon death of the beneficiary, the State is the first remainder beneficiary to be paid back for all Medicaid benefits provided during the beneficiary’s lifetime.
Certain individuals with disabilities may find that ABLE accounts (sometimes called “529a accounts” ) are a better alternative to Special Needs Trusts for certain circumstances. Examples could be small inheritances, very small personal injury settlements, leftover childhood assets at age 18, or accumulations of earnings from employment. If the person is older than 65, it might be the only mechanism to preserve some assets.
The ABLE act was based on the “529” education fund statute. The Act enables an account to be established for benefit of a person of any age who became disabled prior to age 26. The payback provision at death is for Medicaid benefits could be smaller, as it is for benefits paid after the date the account was created. Up to $15,000 per year can be added to the account by any person. Up to $100,000 within the account will be excluded as a resource, so that SSI and medicaid benefits won’t be lost. Funds left over in a 529 education fund can be rolled over into the ABLE account if the beneficiary of the education fund becomes disabled. As long as funds are spent on “qualified disability expenses” ranging from housing to transportation to vocational training and more — they are excluded from income, and also are not considered ‘income” under SSI or Medicaid. Prior notice to the government is not required. Another useful benefit is that an ABLE account can be moved from one disabled beneficiary to another during the initial beneficiary’s lifetime. This may be very useful in certain families if the first beneficiary’s needs and circumstances drastically change. Also, the fund can be directly accessed by the disabled individual through use of a debit card.
How is an ABLE account established? The ABLE account can often be set up online, and generally, no court order is required, though it is possible that the legal guardian for an incapacitated individual would have to obtain court approval to transfer available assets into the account. New Jersey still does not have its own ABLE act, but a New Jersey resident could us the program of a sister state such as Ohio, which has a modest annual maintenance fee of just $42.00. In that plan.
Each person’s situation is unique, and as with all legal planning, the pros and cons of each strategy should be carefully weighed. Call us to help you put together an asset preservation plan that meets your needs… 732-382-6070