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Changes to ABLE Accounts You Should Know

Changes to ABLE Accounts You Should Know

If you have a loved one with disabilities, you may be familiar with “ABLE” accounts, authorized by Congress in 2014 under the Achieving a Better Life Experience Act.  ABLE accounts are tax-advantaged savings accounts–similar to 529 education savings plans–whose funds can be used to pay for certain qualifying expenses of disabled individuals. As a result of the Tax Cuts and Jobs Act (TCJA), there are several changes that affect ABLE accounts.

What You Should Know

First, a 529 account can now be rolled over to an ABLE account. However, the ABLE account must be for the same beneficiary as the 529 account or for a member of the same family. Previously, families who originally funded a 529 account for a child whose disability manifested later in life would suffer a tax penalty if the funds were withdrawn from the 529 account to cover medical expenses because they were not allowable education expenses.  Now those same funds, through the use of the rollover, can be made available for the beneficiary’s disability-related expenses. There are limits as to how much can be rolled over, so it is important to discuss any changes to a 529 plan with your tax professional.

Second, a beneficiary of an ABLE account can now contribute their personal earned income into their own account. The maximum amount a beneficiary can contribute is equal to the annual federal poverty level for a one-person home ($12,490.00 in 2019 in the continental United States and the District of Columbia). These contributions, however, are separate and apart from  contributions made to the ABLE account by other individuals (family members, friends, estates, trusts, etc.).  Further, a working beneficiary will not be eligible to contribute their own money to the ABLE account if their employer contributes to a workplace retirement plan on his or her behalf.

Third, those beneficiaries who contribute to their own ABLE account, as opposed to others who contribute to the account, may be eligible for the Saver’s Credit. Up to $2,000 of the contributions made by ABLE account beneficiaries may be eligible for this credit.  This may help lower any income tax owed by the beneficiary or help increase any refund the beneficiary may be entitled to. There are, however, additional requirements that need to be met and it is important to check with an experienced professional to determine what credits may be available for a beneficiary who contributes to their own account.

Know Your Options

It is important to know that ABLE accounts, as well as Special Needs Trusts, have an underlying purpose: to supplement, not replace, the benefits and services provided by government programs like Medicaid and Supplemental Security Income (SSI). If you have a loved one with special needs, contact me at (858) 432-3923 to help guide you through the process of creating a plan that best suits your family’s needs. I look forward to discussing your specific needs and objectives with you!

Create a Special Needs Trust to Protect the Financial Future of Your Child with Special Needs

Create a Special Needs Trust to Protect the Financial Future of Your Child with Special Needs

It always surprises me to hear parents who have a child with special needs tell me that they were not aware of what they needed to do to ensure the future well-being and care of their child is properly handled. Or sometimes, they tell me they didn’t know they needed to do anything at all.

If that’s you, and you have a child with special needs at home, this article is for you. And if you have friends or family who have a child with special needs, please share this article with them.

Every parent who has a child with special needs must understand what’s needed to provide for the emotional, physical, and financial needs of their child, if and when something happens to them.

Naming guardians
Of course, the first and most critical step in ensuring the well-being and care of your child with special needs’ future is to name both short and long-term legal guardians to take custody of and care of your child, in the event of your death or incapacity. And as you well know, this responsibility doesn’t end at age 18, if your child will not grow into an adult who can independently care for him or herself.

While I understand this lifetime responsibility probably feels overwhelming, I’ve been told repeatedly by parents that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief.

I frequently build in plans where the named guardians are properly instructed—and even incentivized—to give your child the same care you provide. For example, I’ve created plans whereby the named guardian is compensated for taking the child to dinner and the movies weekly, or doing something similar if this is something the child used to enjoy doing with his or her parents.

But without written instructions (and perhaps compensation) built into the plan, fun activities like this can often go by the wayside when you’re no longer available. For guidance on selecting legal guardians and properly instructing them to provide your child with special needs the same level of care and attention you do, consult with me as your Personal Family Lawyer®.

Beyond naming a guardian, you’ll also need to provide financial resources to allow your child to live out his or her life in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits.

Special Needs Trusts
Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child without affecting his or her eligibility for public healthcare and income assistance benefits.

However, the rules for such trusts are complicated and can vary greatly between different states, so you should work with me as your Personal Family Lawyer® in order to create a comprehensive special needs trust that’s properly structured and appropriate for your child’s specific situation.

Setting up the trust
Funds from a special needs trust cannot be distributed directly to a beneficiary and must be disbursed to a third-party who’s responsible for administering the trust. Given this, when you initially set up the trust, you’ll likely be both the “grantor” (trust creator) and “trustee” (the person responsible for managing the trust), and your child with special needs is the trust’s “beneficiary.”

You’ll then name the person you want responsible for administering the trust’s funds once you’re no longer able to as “successor trustee.” To avoid conflicts of interest, overburdening the named guardian with too much responsibility, and provide checks and balances, it can sometimes be best to name someone other than your child’s guardian as trustee.

As the parent, you serve as the trustee until you die or become incapacitated, at which time the successor trustee takes over. Each person who serves as trustee is legally required to follow the trust’s terms and use its funds and property for the benefit of the individual with special needs.

And in all cases, you should name a series of successor trustees, which can even be a trust company or other professional fiduciary, as backups to your primary named trustee.

Placing money and property into a special needs trust
There are two ways to set up a special needs trust. In one situation, I build it into your revocable living trust, and it will arise, or spring up, upon your death. From there, assets that are held in your revocable living trust will be used to fund your child’s special needs trust.

In other cases, I can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child now. This makes sense if you have parents or other relatives who want to give your child with special needs gifts sooner rather than later.

I’ll be dedicating a future article on the available estate planning options you can use to pass money to a special needs trust. Until then, consult with me as your Personal Family Lawyer® if you need guidance on the planning vehicles that are best suited for this purpose.

The trustee’s responsibilities
Once the trust is funded, it’s the trustee’s job to use its funds to support the beneficiary without jeopardizing eligibility for government benefits. To handle this properly, the trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the law. The trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs.

Given this huge responsibility, it’s often best that you name a legal or financial professional who’s familiar with the complexities of the law as trustee or co-trustee, so they can properly handle the duties and not jeopardize eligibility.

If you need help creating a special needs trust for your child, contact me as your Personal Family Lawyer ®. I can develop a sustainable living plan for your child with special needs that will provide her or him with the financial means they need to live a full life, while preserving their access to government benefits. Contact me today to get started.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today at (858) 432-3923 to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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