Pennsylvania authorizes ABLE Act accounts for the disabled

SNT1Many disabled individuals in the U.S. receive public benefits from programs that place restrictions on the dollar amount (typically $2,000) of assets a recipient can own. Medicaid and SSI are two examples.

Federal and state law allow the establishment of certain trusts, such as special needs trusts and pooled trusts, to benefit the disabled without affecting their eligibility for benefits. This type of trust is not limited in dollar amount.

Now disabled Pennsylvanians will have another tool to assist them financially – a private savings account authorized by the Achieving a Better Life Experience Act, known as ABLE for short. Last week, Pennsylvania Governor Tom Wolf signed legislation authorizing the creation of ABLE accounts in this state.

The law will allow accounts to be funded with up to $14,000 per year, which can grow tax-free. Participants can make tax-free withdrawals from ABLE accounts to pay for qualified disability expenses.

The law directs the Pennsylvania Treasury Department to create the mechanism for disabled Pennsylvanians to create their own ABLE accounts, and to administer the program, as the department currently does for 529 accounts used to fund education of a family member.

According to the Governor’s office, the current goal is to have the program ready for people to create accounts by the fourth quarter of 2016.

Click here for a link to read about the various features of Pennsylvania ABLE accounts.

If you need advice about using an ABLE account, special needs trust, or other strategy to aid the disabled, consult an attorney experienced in working with programs for the disabled. You can call Sykes Elder Law to discuss your situation.

Support the Special Needs Trust Fairness Act

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A special needs trust holds assets (usually funds) for the benefit of a disabled person without affecting any public benefits the person may receive, such as SSI or Medicaid. Those assets can then be used for the disabled person’s benefit.

Current law allows a disabled person to create a special needs trust, with his or her own funds (a “self settled” trust). However, the law restricts those who can establish such a trust to a “parent, grandparent, legal guardian of the individual, or a court.” (See 42 U.S.C. 1396p(d)(4)(a).) 

Oddly, the disabled person has no power to establish a self settled special needs trust. As a result, a disabled person — even one with full mental capacity — must petition a court to create such a trust when there is no parent, grandparent, or legal guardian.

The Special Needs Trust Fairness Act introduced into this session of the U.S. Congress (H.R. 670) would remedy that gap in the law by allowing a disabled person to establish a self settled special needs trust on the person’s own behalf.

The bill enjoys bipartisan support. A version of this bill in the last Congress passed out of the Senate Finance Committee but failed to become law.

We at Sykes Elder Law support the Special Needs Trust Fairness Act. Current law burdens disabled persons unnecessarily by requiring them to file court petitions to establish their own trusts, simply because they have no parent, grandparent, or legal guardian to do that for them. This distinction is unfair, benefits no one, and causes unnecessary work for the court system.

We urge all those who care about the disabled in our country to support the bill and to make your support known to your senators and representatives in Congress.

A victory for disabled families: ABLE Act signed into law

The ABLE Act bill was co-sponsored by Sen. (D-PA) Bob Casey, shown here at the podium.

The ABLE Act bill was co-sponsored by Sen. (D-PA) Bob Casey, shown here at the podium.

The Achieving a Better Life Experience (ABLE) Act recently won Congressional approval in the Senate. The ABLE Act lets people with disabilities and their families set up special savings accounts for disability-related expenses without facing loss of their federal benefits when savings exceed certain limits.

Disability-related expenses include education, housing, transportation, employment training/support, assistive technology and personal support services, health prevention and wellness, financial management, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.

President Obama signed the Act into law, but the states will need to implement the Act. Persons who become disabled before age 26 are eligible for an ABLE account.

This is a victory for disabled families who need tax-free savings for disability expenses.

 

What is a “third party” special needs trust?

When someone uses his or her own money to set up a special needs trust (SNT for short) for another person, that’s called a “third party” SNT.

It’s the best kind of SNT for two reasons.

First, unlike a “first party” or “self settled” SNT (established with the beneficiary’s own funds) a third party SNT does not have to be a “payback” trust. A first party SNT must provide that when the beneficiary dies, any remaining funds in the trust have to go to the state to pay back any Medicaid costs paid for the beneficiary. Only after the SNT pays back those costs can any remaining funds go to other beneficiaries.

But a third part SNT can leave remaining funds to others with no payback requirement.

Here’s an example. Mary has one disabled child, Eric, and two others who are not disabled. She decides to leave, say, $100,000 to Eric. If Mary leaves the money to Eric outright, he could arrange to have it placed into a payback trust. If $40,000 remained in that trust when Eric died, the rest would go first to pay back any Medicaid costs the state paid for Eric while he was alive. If there was anything left after paying the state, the remainder could go to Mary’s other two children.

But if Mary’s will established a SNT for Eric, that would qualify as a third party trust. If $40,000 remained when he died, the entire amount could pass to Mary’s other two children.

Second, a third party SNT is easier to establish. A competent person wishing to establish a SNT for another person can simply sign the trust document.

On the other hand, a person wishing to set up a first party SNT with his or her own money cannot just go ahead and do that. For some unknown reason, the law requires a parent, grandparent, legal guardian, or court to establish the trust for such a person. That requirement can pose a difficult hurdle, and require additional legal expense, if the parents and grandparents are deceased or incapacitated, or there is no legal guardian.

Third party trusts require advance planning, but they’re worth it.

What can a special needs trust pay for?

You may know that a special needs trust generally pays for the supplemental needs of the disabled, in order to preserve access to means-tested public benefits.

But what are those supplemental needs?

Commonly paid items

Below is a list of items that are often paid for by special needs trust.

Education – tuition, tutors, books, supplies

Computer, printer, internet, technological support

Home care, if not paid by another program

Phone or mobile phone, voice and/or data plan

Entertainment

Cable TV

Clothing (wasn’t always allowed to be paid for, but has been since 2005)

Medical supplies and equipment, such as wheelchairs, hearing aids, etc.

Eyeglasses

Vacations, including tickets or other travel charges, hotel

Companionship

Exercise and physical therapy equipment

Furniture

Health insurance premiums

Life insurance premiums

Household supplies and cleaning products

Tools used for home repair and maintenance

Dental costs

House and vehicle

Two items that raise more complicated questions are the purchase of a house and a vehicle. Both may be beneficial and even necessary, and can often be purchased with funds from the trust. However, keep in mind that the purchase of such items raises complex questions of title and ownership, upkeep, insurance, and contribution by other family members.

Important caveats

Keep in mind that this list is not comprehensive. There any number of other items that will not reduce benefits and could be paid for by a special needs trust.

Check the terms of the trust. Even if an item is on this list, make sure the trust document itself allows the expenditure.

The general rule is that a special needs trust pays for items other than food and shelter. Such items could be paid for, but the purchase raises the issue of “in kind support and maintenance,” also referred to as ISM, which can reduce benefits. There may be reasons why the trust should make ISM payments, but that is a complicated topic for another blog post.

Check the rules of your local jurisdiction. Some states have rules that are more restrictive than others.

And of course, it’s best to seek competent professional advice before making distributions from a special needs trust. (Corporate trustees such as banks, trust companies, and nonprofits that are approved for handling special needs trusts, often serve as trustees of special needs trusts, rather than a family member or friend, because of the legal complexity.)