Individuals who have supplemental resources (over $2000) can often be in danger of losing public benefits, such as Supplemental Security Income (SSI) and Medicaid. The question then becomes what to do with the additional resources to ensure benefits can be maintained. These benefits can either be spent down to keep the person under the $2000 threshold or they can be used to fund a Special Needs Trust (SNT) or an ABLE account. Both SNTs and ABLE accounts are savings tools that protect eligibility for public programs; however, they do have differences which are described below:
The “ABLE” account is a relatively new planning tool that offers an individual with disabilities a tax-free savings option (similar to a 529 College Savings Plan) that does not interfere with the person’s eligibility for government benefits, such as Supplemental Security Income (SSI) and Medicaid. The ABLE account is the result of the ABLE (Achieving a Better Life Experience) Act, legislation signed into law in 2014, that allows an individual with a disability to have a tax-preferred savings account without jeopardizing his or her Medicaid and SSI eligibility. Prior to the ABLE act, the only legal way to save money without jeopardizing eligibility for these benefits was the special needs trust.
SPECIAL NEEDS TRUST (SNT)
The special needs trust (SNT) – which is established by placing funds and other assets under the control of a trustee – is a legal document that is designed solely for the financial protection of an individual with a disability. There are several ways in which a SNT can be funded and managed. Family members can gift assets and leave inheritances to a person with disabilities during their lifetime of the grantor or at their death. These are third party trusts, as the funds used to set up the trust are from someone other than the beneficiary. First party trusts are funded by the beneficiary’s assets. A first party trust can be set up for a specific individual, or an individual can become part of pooled first party trust. Pooled trusts are administered by nonprofit organizations, funds are pooled together for investment purposes and each beneficiary has a sub account. Attorney counsel would need to be sought for the establishment of a private first or third-party trusts. There are several organizations that offer pooled third-party trusts, including Life Enrichment and Colorado Funds for People with Disabilities.
For more information including eligibility, establishment and management, contribution limits, investment options, use of funds, fees, Medicaid payback and more, Overture is happy to help answer questions and point you in the right direction. To receive more specific recommendations on enrollment and future investment opportunities, we highly recommend you connect with an ABLE or SNT expert.