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As government programs do not cover all expenditures related to these categories, ABLE accounts can be used to pay for shortfalls.

Should We Have an ABLE Account or a Special Needs Trust? The Answer is A Special Needs Trust.  The cost of care and support can be as much as $100,000 per year. As a result, most individuals with disabilities will require government assistance, such as Supplemental Security Income and Medicaid. However, these individuals must shelter their assets carefully to not be disqualified from these programs. That’s why people many use special needs trusts and ABLE accounts.

As CNBC’s recent article entitled “Here’s how ABLE accounts, special needs trusts differ … and how they can work together” explains, there are two kinds of special needs trusts:

  • A third-party trust is funded with the parents’ [or others’] money, for only the disabled child’s needs. It isn’t in the child’s name, and when the child passes away, the funds go to someone other than the child.
  • A first-party trust is created with the individual’s own assets to shelter any income, whether earned or inherited, to not go above Medicaid income and asset limits. Distributions must be approved by the trustee. Any funds remaining after the child’s death may be claimed by Medicaid, if the child was a recipient.

Special needs trusts can’t be used for certain basic expenses that are covered by government programs. These are things like groceries, which are covered by Supplemental Nutrition Assistance Program; medical expenses, covered by Medicaid; and housing expenses, covered by SSI.

ABLE accounts, defined as “tax-advantaged savings accounts that can fund disability expenses,” can be used for a range of “qualified disability expenses.”

However, a Special Needs Trust is much more flexible.  That is one reason why when someone asks: Should We Have an ABLE Account or a Special Needs Trust? The Answer is A Special Needs Trust.

Reference: CNBC (July 30) “Here’s how ABLE accounts, special needs trusts differ … and how they can work together”

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