ABLE accounts, new tax-free saving accounts for people with disabilities, hold great promise for special needs planning. But among the many questions surrounding ABLE plans is who can open accounts? Only the person with a disability? Parents? Other relatives? Friends?
Created by Congress via the passage of the Achieving a Better Life Experience (ABLE) Act in 2014 and modeled after popular 529 college savings accounts, ABLE accounts allow people with disabilities to save for disability-related expenses while maintaining eligibility for Supplemental Security Income, Medicaid and other government benefits. People can save up to $15,000 annually, up to a maximum $100,000. Nearly every state in the country has passed legislation enabling people with disabilities and their families to open these new savings accounts.
So who is allowed to actually open an account? ABLE accounts can be set up either by the account beneficiary (the person with disabilities), or that person’s parent, legal guardian or another person with power of attorney.
If beneficiaries set up the accounts, however, they must not be a minor, meaning they are age 18 or older, and not have cognitive disabilities that would prevent them from being able to do so.
One limitation on ABLE accounts, however, is the ABLE Act’s strict definition of a qualifying disability. In order to be the beneficiary of an ABLE account, the person’s disability must have begun prior to the age of 26. This excludes many people with disabilities that formed later in life, such as many individuals with chronic conditions or disabilities resulting from car crashes or other incidents. The ABLE Age Adjustment Act, currently before both houses of Congress, would raise the onset-of-disability age from 26 to 46.
If you want to set up or contribute to an ABLE account for yourself or a loved one, contact us today.
Under the federal tax code, certain low- and middle-income workers are eligible for a tax credit, known as the Saver’s Credit, designed to reward them for contributing to their retirement plans.
The new tax law, the Tax Cuts and Jobs Act, provides that people will now be able to benefit from the credit when they contribute to ABLE accounts for people with special needs.
Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014, creating a new savings vehicle for people with disabilities that preserves their eligibility for Medicaid, food stamps, and other means-tested programs while saving for disability related expenses.
Annual contributions to ABLE accounts are capped at $15,000. Of these contributions, a certain portion of the first $2,000 -- $4,000 if the person is married and filing joint taxes -- can be deducted via the Saver’s Credit, depending on the contributor’s income.
With the Saver’s Credit, people can receive a credit equivalent to 50, 20, or 10 percent of their annual contributions to Individual Retirement Accounts (IRAs), including both traditional or Roth IRAs, or employer-sponsored retirement plans -- and now ABLE accounts as well -- up to $2,000.
For 2018, individuals with adjusted gross incomes of less than $28,500, filing as the head of household, can receive a credit for 50 percent of their contributions. So, for example, if a person making $25,000 in adjusted gross income contributes $2,000 toward an ABLE account, she can receive a $1,000 credit on her tax return by claiming the Saver’s Credit. This figure drops to 20 percent if the person’s adjusted gross income is between $28,601 and $30,750, then to 10 percent if the person earns between $30,751 and $47,250. (All income figures are for 2018.) The credit is not available to people making an income above these amounts.
Anyone contributing to an ABLE account could potentially be eligible for the credit, although it is not available to people under age 18 or full-time students, as well as people who are listed as dependents on another person’s tax return.
The Saver’s Credit can be claimed by filling out IRS Form 8880, Credit for Qualified Retirement Savings Contributions. This form will be revised later in 2018 to reflect the new changes.
For more about ABLE accounts, contact us.
Trustees of special needs trusts generally have wide discretion in determining whether to distribute funds to trust beneficiaries. But if the person with disabilities receives Supplemental Security Income (SSI), careful precautions should be taken before any trust funds are used to pay for housing costs.
For the year 2018, federal guidelines set the maximum monthly SSI benefit at $750 for individuals, $1,125 for eligible individuals with an eligible spouse, and $376 for an “essential person,” such as a child. Certain states add a supplement on top of the federal maximum.
The most critical factor in determining whether SSI recipients are eligible for the maximum benefit is their housing arrangement.
People living alone who pay their full rental expenses, including utilities, are eligible for the maximum monthly SSI benefit, assuming they would otherwise be eligible for the maximum. Likewise, where the SSI recipient lives with another person or persons but pays their proportionate share of the rent, the recipient is eligible for the maximum SSI benefit.
However, where a third party pays the rent—be it a parent or a special needs trust—the Social Security Administration (SSA) will cut the maximum federal SSI benefit by one-third, plus $20. For example, if a person receives $750 from SSI, but his special needs trust covers his monthly rental expenses, his benefit will be reduced to $520.
Spouses of SSI beneficiaries and parents of minor children who are SSI beneficiaries are not considered third parties under the applicable SSA rules, and thus shelter payments by them will have no bearing on the SSI recipient’s monthly benefit. However, SSA income rules apply to parents of minor children and spouses and would likely disqualify a person from SSI for that reason.
The rules are identical for other types of housing arrangements, such as where instead of a special needs trust or other third party paying for rent, it covers the SSI recipient’s monthly mortgage payments, co-op fees or, homeowner fees. The same rules apply for monthly utilities payments, such as electricity, gas or water expenses.
Generally, people who are temporarily institutionalized, such as in a hospital, nursing home or assisted living facility, are not eligible for SSI, with some exceptions. A permanent address, however, is not a requirement for continued SSI eligibility. SSI benefits will generally continue where the person is homeless or living in a shelter.
Finally, for SSI recipients who travel, third parties may pay for hotel and food expenses during travel without causing a reduction in the recipient’s benefit.
Payments from special needs trusts can affect a beneficiary's eligibility for Section 8 housing assistance as well. For more information on distributions from special needs trusts and how they will affect a beneficiary’s eligibility for SSI and other government benefits, please contact us.
According to court documents, legendary singer Aretha Franklin did not have a will when she died, despite reportedly having a son with special needs. The lack of a will opens up the intensely private singer’s estate to public scrutiny and unnecessary costs, and means that there are no specific provisions to protect her son.
Franklin, who died in Michigan at age 76, left behind four sons, but no guidance on how to distribute her estimated $80 million estate. The eldest son, Clarence, age 63, has unspecified special needs and requires “financial and other forms of support for his entire life,” according to the entertainment news site TMZ.
When someone dies without a will – called dying “intestate” -- the estate is divided according to state law. Under Michigan law, an unmarried decedent's estate is distributed to his or her children. (Franklin had been married twice but long since divorced.)
Even if the “Queen of Soul” had wanted her estate to go solely to her children, by not having a will or trust, her estate will have to go through a long public probate process, which will likely cost her estate considerable money. If Franklin had created an estate plan that included a will and a trust, she could have avoided probate and kept the details of her financial circumstances private.
But perhaps even more importantly, that estate plan could have made special provisions to ensure that Clarence would receive proper care for the rest of his life. Franklin could have established a special needs trust to preserve any public benefits Clarence may be receiving, or perhaps allocated him a larger share of her estate. She also could have accompanied a financial plan for him with a Memorandum of Intent (also called a “Letter of Intent”) to serve as the primary source of information about her son’s care, providing a roadmap for the courts, guardians, caregivers and others involved in his life.
Clarence could also be harmed by the absence of a will because it opens up an estate to potential challenges that could drag out the probate process. Without a will to clearly state the decedent's intent, litigation resulting from family conflicts often eats into estates.
Finally, Franklin’s estate will be subject to unnecessary estate taxation, leaving even less for Clarence and her other sons. Although she may not have been able to avoid estate tax entirely, there are steps she could have taken to reduce the amount her estate will have to pay.
"I was after her for a number of years to do a trust," attorney Don Wilson, who represented Franklin in entertainment matters for the past 28 years, told the Detroit Free Press. "It would have expedited things and kept them out of probate, and kept things private."
Estate planning is important even if you don't have Aretha Franklin's assets, and it’s doubly crucial if you have a child with special needs as she did. It allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want, and to create special protections for the child with special needs before it’s too late. You don’t want your plan for your loved ones to simply be “I Say a Little Prayer.”
Contact us to begin working on your estate plan now.
Although millions of people each year earn cash refunds from the Internal Revenue Service (IRS) via the Earned Income Tax Credit (EITC), many others, including many people with disabilities, are not taking advantage of this generous program.
In late January 2018, the IRS issued a Notice encouraging tax filers with disabilities to apply for the EITC, noting that the tax credit could put a refund of up to $6,318 into an eligible taxpayer’s pocket. According to the IRS, many eligible people miss out on the EITC because they fall below the income threshold requiring them to file taxes, even though they can still file taxes and possibly get the credit. Others incorrectly believe that receiving the EITC will jeopardize their eligibility for other government benefits.
The EITC is available to individuals making up to $15,010, a figure that rises based on the person’s tax filing status and the number of qualifying children in the person’s household. For a married couple filing jointly with three qualifying children, the maximum household income is $53,930. Married couples filing taxes separately, as opposed to jointly, are not eligible for the EITC.
Taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. For many EITC recipients, the credit may not only result in paying no taxes, but in receiving a refund from the IRS. The maximum refund for 2017 is $6,318.
To be eligible for the EITC, people must have “earned income.” Income from Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI) or military disability benefits is not considered “earned income,” although recipients of these programs may still end up benefiting from the EITC if other people in their household are making “earned income.”
On the other hand, income from employer-provided disability benefits is considered “earned income,” until the recipient reaches “minimum retirement age,” meaning the age the person could have begun receiving a pension or annuity from their former employer.
Refunds received via the EITC are not considered income for the purposes of means-tested government benefit programs, such as Medicaid, SSI, Supplemental Nutritional Assistance Program (SNAP) benefits, Section 8 housing, or other programs with maximum income limits.
For an IRS estimate of the size of your potential refund from the EITC, click here.
For people needing assistance in filing their taxes, the IRS has a Volunteer Income Assistance Program, which provides free services for certain people making less than $54,000, including people with disabilities and limited English speakers. For the elderly, the IRS has a similar program, known as the Tax Counseling for the Elderly program.
For more from the IRS about the EITC, click here.
Supplemental Security Income (SSI) is a federal program that helps people with disabilities and very low incomes pay for food and shelter. SSI is often confused with Social Security Disability Insurance (SSDI). One of the main differences between the two programs is that SSDI is available to people with disabilities no matter how much money they earn or have, while SSI places very strict limits on a recipient's income and assets. However, in most states, an SSI beneficiary also qualifies for Medicaid health coverage, which can be an extremely valuable benefit.
Once an SSI applicant has shown that she is disabled, she must also prove that she meets the program’s rules for income and assets. As far as assets are concerned, to be eligible for SSI, an applicant can have no more than $2,000 in assets ($3,000 for a couple), a figure that has not changed since 1989. If the applicant can use or liquidate an asset to pay for food or shelter, the asset will probably count as a "resource" against this limit. A resource would include any funds held in the applicant's bank accounts, retirement accounts, or in cash. The $2,000 resource limit does not disappear once a person qualifies for SSI. If an SSI beneficiary ends a month with more than $2,000 in her name, she will lose her benefits in the following month.
However, not all assets count towards the $2,000 resource limit. The major exclusions are:
The Social Security Administration currently lists 44 resource exclusions in all. Your special needs planner can advise you on which assets you own may be excluded from counting towards the $2,000 limit. The planner can also discuss with you setting up a special needs trust to protect an SSI beneficiary's assets while allowing her to maintain SSI eligibility. To learn more, contact us today.
Trustees of special needs trusts are increasingly relying on “administrator-managed prepaid debit cards,” such as True Link cards, when disbursing funds to beneficiaries. These cards offer trust beneficiaries greater independence and the ability to get what they need more quickly. But such cards existed in a regulatory gray area as far as the Social Security Administration (SSA) was concerned. That is no longer the case.
Special needs trusts are created to protect the assets of people with disabilities. When properly maintained, special needs trusts preserve the individual’s eligibility for public benefit programs, such as Supplemental Security Income and Medicaid.
However, special needs trusts must abide by strict rules, overseen by the SSA, concerning what trust assets can be used for. For example, special needs trust funds can almost never be used for food and shelter expenses, medical expenses that would otherwise be covered by Medicaid, and items that can be traded for cash.
To ensure that trust distributions comply with these rules, trustees are increasingly relying on administrator-managed prepaid debit cards, the most commonly used being a reloadable Visa card known as the True Link card. These cards allow trustees to maintain oversight of card transactions while providing people with disabilities -- the cardholders -- the ability to make purchases quickly and independently.
Since the cards can be managed online, trustees are able to link the trust funds to checking and similar accounts and quickly transfer funds to beneficiaries for their use. Along with ongoing monitoring and the ability to print off regular reports, the cards allow trustees to block purchases that my run afoul of SSA’s rules, and thus jeopardize the beneficiary’s continued eligibility for public benefits. Each True Link card, for example, can be customized to block transactions that might negatively affect benefits, such as purchases at grocery stores, restaurants, and bars. Administrators can also set up the card to work only at specific, authorized merchants -- and nowhere else.
On May 14, the SSA published a new section regarding True Link and similar type cards in its Program Operations Manual System (POMS), the SSA’s internal guidance system that is used by field workers who handle benefits eligibility questions. This marks the first time the SSA has recognized these cards as a legitimate way for trustees to manage funds in a special needs trust.
Among the rules set forth in the POMS, the SSA specifies that to protect the beneficiary and the trust from making inappropriate disbursements, the trust must be the account owner and administrator. If the card is used to withdraw cash, such as from an ATM, then the funds will be counted as cash income and thus can affect the person’s eligibility for public benefit programs, If the beneficiary uses the card to pay for food or shelter, the disbursements will likely reduce SSI payments.
To learn more about how an administrator-managed debit card can be used in conjunction with a special needs trust, contact us.
In passing the Achieving a Better Life Experience (ABLE) Act in 2014, Congress created a new way for potentially millions of people with special needs to save for disability related expenses without jeopardizing their eligibility for federal public benefit programs.
In fact, these savings plans, popularly known as ABLE accounts, may be used for an even broader array of products and services than many beneficiaries may realize – including housing expenses, bus fare, financial management services or even, potentially, a smart phone.
The ABLE Act itself defines “qualified disability expenses” as “expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.” It then goes on to list a range of categories of potential uses for funds set aside in ABLE accounts, including:
“Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.”
In subsequent proposed regulations released in June 2015, the Treasury Department and Internal Revenue Service (IRS) reiterated that the term “qualifying disability expenses” should be “broadly construed” to include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”
This means that there is no requirement that the benefit be medically necessary, such as is the case when determining health care services covered by Medicaid, or that it benefit no one but the designated individual. As an example, the regulations specify that a smart phone could qualify as a covered expenses, provided that it serves as “effective and safe communication or navigation aid for a child with autism.”
Originally, the proposed regulations would have also required states to establish safeguards for ensuring that ABLE funds are only used for qualifying expenses, presumably by requiring beneficiaries to obtain pre-approval before distributing funds. In response to a backlash from disability advocates, many who feared that such requirements would be unduly burdensome, the Treasury Department and IRS rescinded this requirement in a notice issued November 2015 So as things stand now, you don’t need to get approval to withdraw funds and pay for a qualified disability expense.
The Obama administration, however, never issued final regulations, although the IRS has stated that “[u]ntil the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.”
To protect against future inquiries from the IRS, the ABLE National Resource Center recommends that beneficiaries maintain detailed records of expenses paid for by ABLE account assets, as well as how these expenses relate to their disabilities in case the expenditures are ever questioned by the IRS. Misuse of ABLE account funds could result in tax penalties and possible loss of public benefits.
Click here to watch a video and read a fact sheet about qualifying disability expenses from the ABLE National Resource Center.
For help in setting up an ABLE account or to find out whether something you want to use the account for is a qualified disability expense, please contact us.
Choosing the right person to serve as trustee of a special needs trust is one of the most important and difficult issues in creating the trust. A trustee typically manages the day-to-day operations of the trust, often making distributions to the trust's beneficiary, investing the trust's assets, and paying the trust's bills – all while maintaining the beneficiary’s eligibility for public benefits programs.
The law isn't very strict about who may serve as trustee, as long as the person is over 18 years of age and is capable of managing his or her own affairs. A trustee can be the child’s parent or other relative, a trusted friend, or a professional such as a lawyer, accountant, trust company, bank or private professional fiduciary. Here are five considerations to help in the choice of who should serve.
Familiarity with public benefit programs. To ensure that your beneficiary's eligibility is never compromised, a trustee's knowledge of public benefit programs is crucial. Many government benefits like Medicaid, Supplemental Security Income (SSI) and Section 8 housing have very complicated and contradictory rules governing special needs trusts. The trustee of a special needs trust must know these rules well, or, at the very least, work closely with a special needs planner who can explain the ramifications of his actions as trustee.
Does the trustee have time to do the job? Serving as the trustee of an active special needs trust can seem like a full-time job. Depending on a beneficiary's needs, the trustee could spend a good deal of time paying bills, monitoring government benefits, helping to secure housing, paying for medical care and serving as a link between the beneficiary and a variety of service providers. If a trustee finds that she can't perform all of these tasks when needed, or if she is sacrificing her family life or other professional obligations in order to work as a trustee, then it may be time to look for a professional trustee.
Consider a professional trustee. This could be an attorney, accountant, trust company, investment firm, bank or private professional fiduciary. A professional allows you to take advantage of that individual’s or institution's experience with public benefits, investments, money management and tax planning. Another advantage is emotional distance. Sometimes, the strains of a beneficiary's demands for trust distributions can cause significant problems for family members. These intra-family complications can be avoided through the use of a professional trustee.
How comfortable are you giving trust control to an outsider? For those who are uncomfortable with the idea of an outsider managing a loved one's trust, it is possible to appoint a family member and an independent trustee as co-trustees. By doing so, you can rest assured that there is a person who is familiar with the beneficiary and has her best interests at heart and that the public benefit programs' requirements are being met. Another option is to simultaneously appoint a trust "protector," who has the powers to review accounts and to hire and fire trustees, and a trust "advisor," who instructs the trustee on the beneficiary's needs.
Is a pooled trust an option? A pooled trust, which is administered by a non-profit corporation, may be a good option for some families. Such trusts pool the resources of many beneficiaries, and those resources are managed by a non-profit association. Pooling trust resources can reduce administrative fees, increase the total funds available for investment, and permit access to better investment opportunities. Because a pooled trust accepts contributions from many beneficiaries, the trust is able to make more stable investments and provide additional management services that a conventional special needs trust might not be able to afford. If the trust is modest in size, it may benefit from the low costs of a pooled trust. Others appreciate the fact that their funds will be used to help others with special needs.
Make sure that whomever you choose as trustee is financially savvy, well-organized, and, most important, ethical. We can help you make the best choice - contact us.
Most special needs trusts give their trustee wide authority, often appropriately so, to respond to unforeseen circumstances. But for those concerned about placing some checks and balances on the trustee’s authority, one possible option is a care committee.
Special needs trusts are trusts designed to protect the assets of a person with disabilities. The trustee is the person tasked with managing and distributing the trust’s assets on the beneficiaries’ behalf.
As previously discussed here, in addition to the trustee, many trusts create a separate care committee, either explicitly in the trust or through a separate memorandum of intent. Care committees, also commonly known as “trust advisory committees,” are typically granted the right to review accountings, to examine records, and to remove and replace the trustee. To use an analogy from the corporate world, the trustee is the CEO and the care committee is the board of directors. The care committee may also be given the authority to amend the trust, veto certain distributions or participate in other decisions.
A downside to the creation of a care committee is that it can slow down the decision making process, at the expense of the beneficiary. Likewise, a care committee can deny the trustee the appropriate flexibility to act in the person with disability’s best interests.
To see if a care committee is right for your special needs trust, contact us.