April 28, 2015

Is the ABLE Act going to help you?  The answer is:  it depends.

ABLE accounts certainly provide planners with an additional tool for their Special Needs Planning toolbox.  How easy will it be for parents to utilize ABLE accounts on their own?  For many parents, the answer will be, “not so easy.”  As a result of the insertion of the Payback clause, the $14,000 annual limit, and the restrictions on “qualified disability expenses” (still to be finalized), the choices are going to get more complicated.

Think about it.  Your disabled child is 17, about to turn 18, and has $4,000 in her name.  You want to apply for SSI so you need to get the amount under $2,000.  Probably not a difficult decision.  You can either spend down to under $2,000 or place it in an ABLE account.  Depending on the severity of the (yet to be determined) qualified disability expense rules, this is not really a difficult call.

Let’s make the number $18,000:

  • Do you place $14,000 in an ABLE account and spend down another $2,000 or so to get your child’s resources under the $2,000 SSI resource limit? Or…
  • Do you go with a Payback Supplemental Needs Trust?

Wait.  Since we can put $14,000 in the ABLE account each year, we may be able to transfer $14,000 this year and the rest next year.  If your child turned 17 this year, this strategy may work.  However, if your child turned 17 last year, then she will turn 18 this year and that presents us with a problem.

When your child turns 18, you no longer have the legal right to transfer the money.  Does your child have capacity?  If not, you may need guardianship of the property to transfer the money.  That’s going to take 6-10 months.  While you’re waiting for guardianship, you’re losing approximately $800 per month in SSI benefits because you can’t apply for SSI until you transfer the money into the ABLE account.  Still with me?

But you say that your child doesn’t have any money in her name.  You want to use an ABLE account for investment purposes.  Perfect.  That’s what it is intended for.  Except…don’t forget the Payback clause.  How much are you willing to risk as reimbursement  to Medicaid for services provided (Payback clause) if something should happen to your child?

What if you run afoul of the IRS qualified disability expense rules?  Probably not a good outcome.  Have you ever heard the words IRS and “friendly” used in the same sentence?  What happens if the IRS restrictions won’t allow you to use the ABLE account to pay for expenses that you thought would be covered?

The more I think about it, the more I’m convinced that parents are going to need someone to go to for advice.  Perhaps yearly;  similar to going to your accountant.  Everything in the special needs world is complex and often convoluted.  The Front Door, OPWDD, the People First Waiver, Supplemental Security Income (SSI), Medicaid, Special Needs Trusts, Guardianship.  I can keep going, but you get it.  You’ve probably experienced some of it already.  And now we’re adding ABLE accounts, which were supposed to be easy!

Our world is becoming increasingly complicated, and mistakes, especially in the special needs world, are costly.  Your special needs child would be the one to experience the consequences of those mistakes, particularly if you are no longer around to make it right.

No one has all the answers.  No one can.  But wouldn’t it be nice to have someone who you can call when you’re not certain about what step(s) to take or which way to turn?  Someone who can guide you; look over your shoulder to help make sure that you’re not making a serious mistake?advisor-cloud-680x450

Perhaps having a trusted advisor on your team, or an advisor who can provide his own team to help you navigate this maze and  assist you in making the difficult decisions would be of value.  Just a thought.