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Disabled from a car accident: Should I go with a special needs trust or the ABLE Act?

April 15, 2015 by Steven M. Gursten


The long-awaited Achieving a Better Life Experience (ABLE) Act was signed into law in late December, making big news for people with disabilities. The Act allows people with disabilities another way to set aside funds to better their quality of life.

In special ABLE accounts, people with disabilities can save up to $100,000 without risking eligibility for some government programs, like Social Security Disability (SSD). Further, they can keep their Medicaid coverage no matter how much money is accrued in an ABLE account. Modeled after a 529 Plan offered by most states to help offset the cost of higher education, earnings in ABLE accounts are not taxed, and contributions are made with after-tax dollars and are not deductible.

The ABLE Act seems to address a major problem for people who become disabled: If they acquire too many assets, they face the possibility of government benefits like SSD being cut off. If they go back to work or save too much money, critical governmental benefits are placed in jeopardy. If they have too much in savings, or a job that pays them over specific limits, they may not be eligible in the first place.

In some states, such as Michigan where I practice law as an auto accident attorney, I’ve seen first-hand what happens, especially in very sad situations involving disabled children. After a terrible injury accident has occurred, attention must be placed on security, special needs trusts and planning, which seek to maintain a special needs child’s eligibility for means-tested government assistance, such as Supplemental Security Income (SSI) and Medicaid.

Lately, I’ve been getting many questions from other injury lawyers as to how the ABLE Act might apply for car accident victims receiving a settlement who are on SSD or Supplemental Security Income (SSI) and want to preserve assets and maintain Medicaid eligibility.

The bottom line: Unfortunately, there’s only a small amount of accident victims who will fit the ABLE Act requirements.

Here are a few reasons why:

  • The program applies only to those who have a condition that occurred before age 26: Proving disability and the age of onset will be easiest for people on SSI prior to 26. If they are establishing the account for the first time without having been on SSI, the person must prove they have severe functional limitations.
  • The law would suspend the payment of SSI benefits to an individual during any period there’s excess resources in the ABLE account: Also like 529 plans, each state will set its own lifetime contribution limits, and annual contributions are limited to the annual gift tax exclusion, which was $14,000 in 2014. However, those on SSI will be limited to a $100,000 balance in an ABLE account to be considered an exempt resource, in addition to the $2,000 asset limit.
  • While the new law changes federal rules to allow for ABLE accounts, each state must also put regulations in place, so financial institutions can make the accounts available.
  • Keep in mind for Medicaid recipients: If the individual is on Medicaid, upon their death any remaining assets must be used to reimburse the state Medicaid agency, just like a special needs trust.
  • Here’s another blog I wrote with more information: ABLE Act: Helping people with disabilities save, without putting gov. benefits in jeopardy

Factors that make the ABLE Act right for you

The system as it is now discourages people with disabilities from saving because they risk losing the means-tested government benefits that keep roofs over their heads and provides the medical coverage they need to survive.

While the ABLE Act might have some limitations, it’s still beneficial for people with specific circumstances.
Michele P. Fuller, an elder law attorney at the Michigan Law Center, listed certain factors that one needs in order for the ABLE Act to work in your favor:

“For the individual who wants control over their own funds, is able to use them within the prescribed guidelines, fits within the limited definition of who can establish an ABLE account, has a small amount of funds to be protected, and do not mind the state being reimbursed after they are gone, an ABLE account may be an option.”

Why a special needs trust might be a better option

Often, an attorney must work closely on other aspects of general settlement planning that can affect Medicaid and Medicare rights, and estate issues and probate administration.

Fuller says a special needs trust may be a better option than the ABLE Act for accident victims with serious disabilities:

“The ABLE account is another tool in the planner’s toolbox, but the limitations and added imposition of a state payback on third-party funds still make the special needs trust a much better planning option. A special needs trust has no contribution limits. The type of benefits and type of trust determines how the funds are distributed. There is no age threshold for when the disability occurred. For third-party trusts there is no requirement to prove disability at all, let alone that the disability occurred prior to age 26. Most significantly, a third-party special needs trust (holds assets contributed by someone other than the beneficiary) has no state payback required, so any remaining assets upon the death of the beneficiary go to the family.”

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