ABLE 529 Update

Hi all!  I have an update on Ohio’s implementation of their ABLE 529 account.  I get updates every so often from State Representative (and former curler) Tim Brown.  He says that Ohio’s funding has been ensured for HB 155, or as we know it, Ohio’s ABLE Act.  This funding is part of the budget that has been submitted to to Governor Kasich for his signature.  This is very exciting for both special needs families and planners alike.

A short update, I know, but I had to share the good news.


The Holy Trinity (of documents needed for your special needs child)

Ok people! There are three documents out there that EVERY parent of a special needs child needs to have in place; A Special Needs Trust, A Guardianship Nomination (done in your will or trust), and A Letter of Intent.  So what are these documents and why do I need them?

1. A Special Needs Trust – a 3rd Person Special Needs Trust, funded either while you are alive or by your assets at death, is a trust that holds assets for the benefit of your disabled child without disqualifying them from SSI, SSD, and Medicaid.

2. A Guardianship Nomination – Your will or trust should include a guardianship nomination for all of your minor children. Remember, when your child turns 18, they are now an adult, even if they disabled and do not have a the mental capacity to care for themselves either physically or mentally.  It is essential that you take the time to nominate a guardian for your disabled child so that their life routine is not disrupted.  While not binding, the person you nominate as guardian will typically be given preference by the Court.

3. A Letter of Intent – This is basically a snap shot of your child.  It should include information about your child’s routines, preferences, medical history, allergies, interests, etc.  The purpose of the letter is so your child’s next caregiver will know as much about your child as possible.  This will make sure that their needs and wants are met and that their routine is uninterrupted.

Remember, the name of the game in estate planning is smoothness.  The idea is that your child’s transition to a new caregiver when you pass away is as smooth as possible.  We all know how important routine and predictability is to many special needs adults and children.  Having these documents will make life easier for everyone involved, especially your child.

ABLE in a Nutshell, A Fantastic Tool for Special Needs Planning

There is good news for the special needs community.  At the end of last year, President Obama signed the Achieving a Better Life Experience Act, or ABLE into law.  It is a law that allows individuals who are disabled to keep more than $2,000 in assets.  Here is how it works. 1. The individual must have been disabled before the age of 26. 2. Only one account may be opened per disabled person. 3. The interest earned on the account is tax free. 4. Up to $14,000 can be deposited annually. 5. The account can hold a maximum of $100,000. So what does this mean for special needs individuals? What it will do is replace the need for a 1st Person SNT for many individuals who have been disabled from birth.  I envision it as a fantastic tool for people who are special needs but also working.  Now, they will be able to accumulate a savings without losing their benefits.  Obviously this won’t replace planning for the family and the use of 3rd Person SNTs but will become a part of the planning.  Any legislation that gives special needs individuals a chance to live a richer, fuller life is fantastic.  As soon as Ohio and Michigan implement their ABLE plans, I will start recommending them to all of my special needs clients who work.

How should my Special Needs Trust (SNT) be used?

Special needs trusts (SNTs) are great tools, but fickle creatures.  They are kind of like the Wizard pocket organizer from Seinfeld.  For those Seinfeld junkies, you will remember the Wizard as the pocket organizer that Jerry gave to his dad who proceeded to only use it as a tip calculator to which Jerry would always yell, “It does other things”.  SNTs are like the Wizard (or the Willard if you got one from Bob Sacamano, Sr., but I digress), everyone has one (or should have one), but do they know how to use it?

The number one thing that you SHOULD NOT do with a SNT, is take cash out of it and give it to the beneficiary.  This is a terrible idea.  Any cash distributions will reduce SSI benefits on a dollar for dollar basis.  Do you see why this is a terrible thing to do?  Good, so just don’t do it.

The second thing you probably SHOULD NOT do is pay for things like food, shelter, and utilities.  Remember, a significant portion of the benefits that your beneficiary is receiving are for things like food, housing, utilities, etc.  The point of the SNT is to SUPPLEMENT your beneficiaries benefits, not replace them.  If you wanted to use money on necessities, then bag the benefits and just pay out of pocket.  That doesn’t make a whole lot of sense, so don’t do it.  Paying for necessities will incur a similar reduction in benefits.  So what can you do?

You can do pretty much anything else.  Use the SNT for its purpose, to enhance your beneficiaries life and experiences.  Be a good steward of the assets, but at the same time, allow your beneficiary to enjoy a full and rich life that they otherwise wouldn’t be able to experience.

Be Careful With (d)(4)(A) SNT Distributions

Federal Court Rules on Section 8 Eligibility

A Federal Court in Massachusetts recently ruled that a woman was ineligible for Section 8 housing assistance because she received over $60,000 worth of expenditures from her (d)(4)(A) Trust.

This is another example of where 1st Person SNTs walk a tight rope.  How much is too much?  I think that people have got to vigilant and aware of the rules when they use money from an SNT.  Trustees can’t just be handing out money left and right from these trusts without being cognizant of what the impact is going to be on their beneficiary. The very point of these trusts is to keep benefits, what good are they if the money is going to be blown anyway and the beneficiary loses their benefits.

On the other hand, what makes housing so special? Should HUD be counting trust distributions as income?  I know that they do, but should they?  Should 1st and 3rd Person SNTs be treated the same by HUD or should 1st Persons be exempt?  Personally and professionally, I think counting distributions from a 1st Person SNT is a bad rule.  The point of the law is to protect benefits, so let’s protect benefits, housing included.