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New Savings Accounts May Fund Care for Individuals with Disabilities

By Morris Klein, CELA [1]

In December, amidst much euphoria, Congress passed and President Obama signed into law the ABLE Act of 2014 (Achieving a Better Life Experience). ABLE empowers states to create programs enabling individuals with certain disabilities to establish tax-free savings accounts modeled after the popular 529 college savings plans that, if used for qualified expenses, won’t affect eligibility for means-tested public programs such as Medicaid and SSI (Supplemental Security Income). Before states can move forward, the IRS must publish more detailed guidelines, but it’s hoped that some ABLE programs will begin operating later in 2015.

The ABLE Act specifies the following:

Special Needs Trusts

Special Needs Trusts (SNTs) and pooled special needs trusts (PSNTs), established by Congress in 1993, are other means of saving without endangering eligibility for public programs. SNTs must be established and managed by someone other than the beneficiary, but a capable beneficiary may set up their own PSNT. These trusts all involve startup costs, and, if administered by someone other than a family member, trustee fees. Depending upon individual circumstances, these trusts offer flexibility that may make them an attractive choice:

Sorting the Options

Establishing an ABLE account is likely to be a practical choice if [2]:

On the other hand, families may be better served by an SNT if:

There may also be situations in which beneficiaries would benefit from the flexibility of having both an ABLE account and an SNT. For instance, an ABLE account might be established with $14,000 from a large inheritance with the rest initially earmarked for an SNT.

As the states announce their programs, many questions are likely to surface. During the coming months, families and advocacy organizations will be watching government regulators to learn more.

Morris Klein [3], a Bethesda, Maryland, attorney, is co-chair of SNA’s Public Policy Committee. SNA will provide information and resources to individuals and groups to help them understand how ABLE accounts, as well as SNTs and other techniques, can be used for financial planning.

This article was originally published on www.parentingspecialneeds.org [4].