Can I Leave My Estate to an ABLE Account Instead of a Special Needs Trust?
By Lesley Mehalick, JD, LLM
Supervising Partner of the Estates and Trusts Department
The new ABLE accounts offer an additional way for a person with special needs to accumulate savings while still retaining eligibility for his public benefits, including Medical Assistance (Medicaid) and Supplemental Security Income (SSI). This has been a very exciting piece of legislation, which significantly impacts the planning for persons with special needs as previously a Special Needs Trust was the primary vehicle that could hold any significant monies without affecting a person’s public benefits. With the advent of the ABLE accounts, many people are asking if they can name their child’s ABLE account in their Will instead of a Special Needs Trust.
While the ABLE accounts offer additional savings opportunities, in almost every case, the ABLE account is not a substitute for an estate plan with a Third-Party Funded Special Needs Trust. The major reason for this is because the law limits the amount of money that can be deposited into an ABLE account each year. Specifically, each year the account can only be funded with a total amount up to the annual gift tax exclusion, which in 2019 is $15,000.00. This is the total amount that can be put into an able account from all sources combined for the year 2019 (unless the beneficiary is working, in which case he can put some additional amount of his earnings into the ABLE account). Thus, if an estate is in excess of $15,000.00, the ABLE account will not be a sufficient vehicle to inherit monies passing under a will or from life insurance or retirement plans.
Moreover, if the ABLE account has a balance over $100,000.00, then the Beneficiary will lose his eligibility for SSI (his Medicaid will not be affected). Additionally, the monies in the ABLE account may be, depending on which State’s account is utilized and where the beneficiary resides, subject to a pay back to the State at the Beneficiary’s passing for Medicaid provided to the Beneficiary during the term of the ABLE account. While Pennsylvania has stated it will not enforce this payback for Pennsylvania residents using Pennsylvania ABLE accounts, the monies in the Pennsylvania ABLE account are still potentially subject to the Estate Recovery Act for certain Medical Assistance provided to the beneficiary over age 55.
Another difference between an ABLE account and a Special Needs Trust is that the monies in the ABLE account are held and managed by the Pennsylvania Department of Treasury, and under the law, the Department of Treasury must regularly report accountings of the ABLE account to the Social Security Administration (SSA). Such a requirement is not necessary in a typical Supplemental Needs Trust created as part of an estate plan. When the SSA receives the reports with the account balances, it could audit SSI recipients and ask how the monies in the ABLE account have been used.
Due to the funding limitations, the potential pay back, and the reporting requirements, the ABLE account is not a substitute for a Third-Party Funded Special Needs Trust in the vast majority of cases. That being said the ABLE accounts can be used in conjunction with an estate plan and a Third Party Funded Special Needs Trust as the ABLE accounts have some unique uses and benefits that complement a Special Needs Trust, such as giving the Beneficiary more ownership and independence over the account monies, using the ABLE account for shelter costs in order to avoid a reduction in SSI, and allowing a working Beneficiary to deposit his earnings into the account to prevent him from accumulating too many resources in his own name.