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Proposed ABLE Act provides some benefits of special needs trusts

As for anyone reaching the age of majority, legal changes occur when children with special needs turn 18. For those with serious disabilities, one of them may be transitioning from child- to adult-Supplemental Security Income beneficiaries. Unfortunately, many will experience a drop in their standard of living as they move out from under their parents’ financial umbrella.

You see, adult SSI beneficiaries can earn no more than $700 per month and own no more than $2,000’s worth of assets. Many parents have some income they could use for their adult child’s care, but not nearly enough to pay their living expenses for life. SSI provides a subsistence income for low-income individuals who can’t sustainably work due to a disability.

The $2,000 asset limit, unfortunately, means that parents can’t give their kids much additional support without affecting their SSI and Medicaid eligibility. Both limits can also act as a disincentive for beneficiaries to improve their employment prospects, because they can’t afford to risk losing their SSI income without a sure alternative.

A special needs trust can be an effective resolution for the first problem. Set up correctly, a special needs trust can provide the child with money to pay expenses not covered by SSI or Medicaid without affecting their eligibility for these critical benefits.

A new law being proposed could provide some similar benefits through a tax-sheltered disability savings plan. The Achieving a Better Life Experience Act, or ABLE Act, would authorize these accounts to be used for the reimbursement of certain qualifying expenses not covered by SSI or Medicaid. The Act would amend the section of the tax code that authorizes 529 college savings plans, and it even allows parents with existing 529 plans to convert them into the new plans, called 529A plans.

On a day-to-day basis, they would work much like health care savings accounts. Participants could deposit their paychecks, and money in 529A accounts wouldn’t count against their SSI and Medicaid eligibility. Reimbursable expenses would include education, transportation, employment support, personal support, assistive technology, personal support, preventive health care services and housing.

If passed, the ABLE Act could to give adults with disabilities a new option to help them become financially self-sufficient. In the meantime, if you have a loved one with a disability who is nearing age 18, consider discussing a special needs trust with an estate planning lawyer.

Source: The Washington Post, "How the proposed ABLE Act will help parents of children with disabilities," Mari-Jane Williams, March 6, 2014

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