ABLE Accounts Now Available in North Carolina

There are several tools that can be used to protect assets for a beneficiary with special needs who is receiving need-based government assistance, such as SSI and Medicaid. These include first-party Special Needs Trusts (SNTs), Third-Party SNTs, Pooled Trusts, and, most recently, ABLE Accounts. ABLE stands for the federal law approving these accounts – the Achieving a Better Life Experience Act. ABLE Accounts have been available in North Carolina since January 26, 2017.

The Benefits

ABLE Accounts allow certain individuals to set up a special type of 529 account to hold assets to supplement their government benefits. There are several benefits that ABLE Accounts provide:

  • The assets held in an ABLE Account grow tax-free, much like a standard 529 college savings account.
  • They are neither difficult nor expensive to set up. An account can be opened at www.NC.savewithABLE.com. The maintenance fee is $45.00 per year.
  • ABLE account balances less than $100,000 are excluded from the owner’s SSI resource limit.
  • Even if the account balance exceeds $100,000, the account owner not be disqualified from Medicaid because of the account balance. SSI benefits will be suspended until the owner is under the resource limit.  
  • There are several investment options to choose from.

The Drawbacks

Although ABLE Accounts are a valuable tool in certain situations, there are also certain limitations:

  • ABLE Accounts are only available for those whose disability was present prior to age 26.
  • If the account balance exceeds $100,000, the owner’s SSI benefits will be suspended until the balance is reduced under the resource limit. In no case may an account balance exceed $420,000.
  • There is a $14,000 annual contribution cap on these accounts.
  • The funds can only be used to pay for limited expenses that are not provided for by other government benefits like food stamps, HUD and Section 8 assistance, SSI, and Medicaid.
  • After the owner’s death, any remaining balance in the ABLE Account will be payable to Medicaid up to the value of Medicaid benefits that the owner has received. It is important to understand this. ABLE Accounts are treated much like first-party SNTs in this regard.  

When ABLE Accounts Might Be a Good Fit

Prior to the existence of ABLE accounts, small inheritances, gifts, or injury settlements created problems for those receiving benefits. If the amount received was not large enough to justify setting up a SNT, the money would have to be spent down or it would cause a disqualification. If your mother passed away leaving your special needs child $10,000, or your special needs child received $7,500 from a personal injury case, an ABLE Account may be a great choice.

When you May Want to Stick with a Third-Party SNT

Third-party trusts are not funded with the special needs person’s money, and do not require a Medicaid payback provision. Any time that you can control when a person with special needs receives a gift or inheritance, a third-party trust is preferable. The key to a third-party trust is that the gift must go to the trust before it goes to the beneficiary.

If your mother is still living, but plans to leave your special needs child $10,000, there is not a good reason to subject that gift to the ABLE Account’s Medicaid payback provision. Instead, your mother can create a third-party SNT in her Will for the benefit of your special needs child. Or you could set up a standalone irrevocable SNT for your child. Then you, your mother, and others could leave assets to that trust. Because it is not funded with your child’s money, there is no payback provision. Because it is irrevocable, anyone can make a gift to the trust without being concerned that you will revoke the trust and use the money for your own benefit.

When a First-Party SNT May Still Be Your Best Option

Once a beneficiary receives money, such as an inheritance or settlement funds from an auto accident, those funds will cause disqualification from certain benefits unless they are placed in a first-party SNT or an ABLE Account. These are vehicles that allow the beneficiary to keep his or her funds and still qualify for benefits. However, the government wants a chance at getting their money back if the funds aren’t used. Therefore, there is a payback provision.    

In many instances, an ABLE Account will be preferable to a first-party SNT. However, any time that a special needs beneficiary receives more than $100,000 or a countable asset other than cash, a first-party SNT may be the preferred choice.  A first-party SNT can hold real estate, certificated securities, brokerage accounts, and tangible personal property. A trustee will be appointed to manage a SNT. And there is no limit on the amount that may be held in a SNT. 

Maybe You Need Several Tools

There is no one-size-fits-all planning strategy for families with children with disabilities. It requires a thorough review of your financial and family status and your concerns and wishes. When planning for a child with special needs, we often have a Plan B. You may wish to create a third-party trust in your Will or revocable trust, as well as a standalone third-party trust. But if your special needs child received $1,000 for Christmas, an ABLE Account may be a perfect solution.