If you want to give assets to a loved one with a disability either during your lifetime or through your estate, you must plan carefully. Otherwise, you could jeopardize their ability to qualify for public benefits (Supplemental Security Income and Medicaid). While owning a house, car and other personal property does not negatively affect their benefits, most financial assets, including cash in the bank, will disqualify them from receiving benefits. And the current cap in order to qualify for public benefits is a mere $2,000!
Fortunately, there are ways you can leave assets to a family member with a disability while preserving their eligibility for Medicaid and other assistance.
SPECIAL NEEDS TRUST
A Special Needs Trust is the most well-known strategy for helping a loved one with a disability while ensuring they continue to qualify for public benefits. This works because assets are left to the trust, not the disabled family member.
Within the trust document, you will appoint a trustee who will have complete discretion over the trust assets and will be in charge of spending money on your disabled family member’s behalf. The trustee cannot give money directly to your loved one — that could interfere with eligibility for public benefits — but the trustee can spend trust assets to buy a wide variety of goods and services for them. Special Needs Trust funds are commonly used to pay for personal care, vacations, home furnishings, out-of-pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.
529 ABLE ACCOUNTS
The ABLE Act was signed into law in 2014, creating 529 ABLE (529A) accounts to provide a tax-advantaged vehicle for saving assets for disabled individuals. Money in the ABLE account (up to the first $100,000) will not be subject to the $2,000 personal asset limit that determines eligibility for public benefits.
Another major benefit of the 529A account is its taxation. Unlike a Special Needs Trust, money coming out of a 529A account is tax-free if it’s going toward a qualified disability expense. Qualified expenses include education, housing, health care, prevention and wellness, and funeral expenses — but does not include supplemental expenses such as vacations or personal grooming.
Since the legislation for the 529A accounts is still fresh, many states have yet to launch their programs. It may take until late 2016 or early 2017 for the programs to be fully implemented. However, since they each have their own nuances that seem to pair well the other, we envision the 529A and Special Needs Trust working side-by-side for families with disabled children and adults.
If you are in need of more information on any of these accounts, we’d like to hear from you! Take a look at the calendar to find a time that works for you.
Patrick Daniels is the Financial Planning Analyst at Precedent Asset Management, serving clients as a fee-only advisor in the Indianapolis, Indiana area and nationwide, through coordinated financial planning and investment management.