Straight talk from an attorney about trusts, ABLE United, and how to choose what’s right for you.
We all want to know more about how to keep our money safe and make it stretch as far as it can. This topic is especially important — and a little more complicated — for people who have disabilities and for those who care for them.
As a special needs attorney, it’s my job to help people with disabilities create a safe haven for their funds. Unfortunately, there’s not a one-size-fits-all way to do that, but there are some excellent options out there to help you manage your money wisely. Let’s talk about two tools that might be right for you: the special needs trust and the ABLE United account.
We’ll start with the special needs trust, which falls into two categories: the first-party trust, in which the beneficiary puts their own funds into the account, and the third-party trust, in which a relative or friend makes the contributions. An adult who suffers a traumatic brain injury in an auto accident and receives a large award would be one example of someone who might consider opening a first-party special needs trust. Another would be an individual with a disability that receives an unplanned inheritance. If a parent or grandparent, however, wants to open a special needs trust for a special needs child’s future expenses, that would be considered a third-party trust. Different rules apply in each category.
Special needs trusts don’t count against federal benefits, such as Supplemental Security Income (SSI) or state programs like Medicaid. There are no restrictions on how much can be added to the trust in a year, no lifetime limits on how large the trust can grow, and Medicaid cannot make a claim on funds leftover in a third-party special needs trust after the beneficiary’s death.
Now let’s talk about the ABLE United account, which is an option only for those whose qualifying disability occurred before age 26. The ABLE United account has some compelling features. Its fees are quite low, and it’s easy for an individual to set one up on their own; no legal help is required. That makes opening an ABLE United account less costly than opening a special needs trust. And an ABLE United account does something that no kind of special needs trust can do: it grows tax-free.
The drawbacks of an ABLE United account are that you can put in only the annual contribution limit a year. It is also possible that, upon the beneficiary’s death, Medicaid could make a claim on funds in the account to recoup past medical expenses. (UPDATE: See ABLE accounts not subject to a Florida Medicaid recovery claim article)
Because of its low fees, an ABLE United account is an excellent option for individuals who don’t have large sums to invest. It’s also easy for the beneficiary and a third party to both add funds to an ABLE United account; there’s no first-party or third-party delineation like there is with a special needs trust. And, of course, saving funds in an ABLE United account won’t jeopardize federal and state benefits.
Determining how best to save these funds can be daunting, but it’s incredibly important, and there are many experts across Florida that can help you determine what’s right for you. We hope this primer on special needs trusts and ABLE United accounts helps you feel empowered to get started.
*Note: This blog is for informational purposes only and is not considered investment advice. Consult your own tax, financial and legal advisors before making a selection.
Travis Finchum is a special needs attorney with Special Needs Lawyers, PA, in Clearwater.