The ABLE Act A New Tool for Special Needs Planning

Transcription

1 The ABLE Act A New Tool for Special Needs Planning Special Needs Alliance Page 1 of 5 The Voice Newsletter April Vol. 9, Issue 4 This installment of the Voice was written by Robert B. Fleming. Robert is a partner in Fleming & Curti, PLC, a Tucson law firm focusing on special needs planning, trust administration, guardianship/conservatorship and estate planning. He is a Fellow of the American College of Trust and Estate Counsel, and also of the National Academy of Elder Law Attorneys. He has been a member of the Special Needs Alliance since its founding, and was one of the original co-authors of the SNA s Handbook for Trustees, the free online guide to managing special needs trusts. The ABLE Act A New Tool for Special Needs Planning If you want to set aside money for the education of a child (or a grandchild, or anyone else), you can choose from a variety of options. One popular choice is to establish a 529 Plan fund. These education accounts are named after the tax code section authorizing their use, and they make it easy and inexpensive to create education accounts. Advocates have long championed a similar concept for people with disabilities. Years of legislative work finally resulted in approval of the Achieving a Better Life Experience (ABLE) Act last December. The new law allows states to set up programs that permit people with disabilities or their family members to make contributions to similar accounts. Rather than focusing on educational needs, the new ABLE Act accounts are to help pay for disability-related expenses and there are a few other differences between ABLE Act and 529 Plan accounts. The new law creates interesting planning possibilities. Though many people with disabilities will benefit from the ABLE Act, not everyone will. There are a number of limitations on the use of the new accounts, including: Only individuals whose disability was established before age 26 can set up ABLE Act accounts. This may seem unfair to people who acquired their disabilities later in life (or who might have been disabled but undiagnosed at earlier ages), but the age requirement was designed to limit the number of people who could qualify.

2 Updating Your Special Needs Trust Begin with a Self Review Special Needs Alliance Page 1 of 5 The Voice Newsletter January Vol. 7, Issue 2 The Voice is the newsletter of The Special Needs Alliance. This installment was written by Pacheco, California, Special Needs Alliance member Stephen W. Dale of The Dale Law Firm, PC. Steve is a disability rights advocate and attorney dedicated to providing quality estate planning. He is a frequent speaker on a variety of disability related topics across the country. Steve regularly teaches courses to the public, financial professionals, and other attorneys on special needs trusts and trust administration. Additionally, he serves as the trustee for the Golden State Pooled Trust. Steve offers numerous videos and handouts to the public and his colleagues at Updating Your Special Needs Trust Begin with a Self Review A question I often hear is, How often should I have my child s special needs trust reviewed by my attorney? Let me give you the typical lawyer s answer for almost every question, It depends. As unsatisfying as that response might be, the following information may provide you with some further guidance. There generally are two levels of review to consider. The first is an annual review of your estate plan that you may undertake yourself or with the assistance of your financial or tax advisors who help with your overall financial planning. The second is meeting with your attorney to review the trust and your estate plan in general, which generally is done on an asneeded basis when a significant change occurs in your life or relevant changes occur in the law. For example, our estate planning clients who want to provide for a loved one with a disability typically create a revocable special needs trust to be funded upon their deaths or incapacity. Because the trust is revocable, it can be amended from time to time to cope with changes in the clients circumstances or the law. When a client signs a special needs trust, we often flag specific sections of the trust and give our clients instructions to review those sections annually to ensure that the trust remains up-to-date. Here are some typical issues for you to review before consulting with your financial planner or attorney:

3 Updating Your Special Needs Trust Begin with a Self Review Special Needs Alliance Page 2 of 5 Annual Self Review Questions to Ask Myself: Are all of my assets properly titled? You need to review your assets and confirm how they are titled to make sure that all of your assets, including those acquired after you signed your estate planning documents, are flowing properly through your estate plan. This is where a financial advisor can be invaluable. While it is important to assure that your assets, including real estate, retirement benefits, money market accounts, etc., reflect the proper owner or include correct beneficiary designations, it is especially critical when a special needs trust is involved. An error in title or beneficiary designation could cause unnecessary taxes, a lengthy probate and, in the worst of circumstances, the loss of governmental benefits and unnecessary and ongoing court supervision. For example, if an insurance policy lists as one of the beneficiaries your loved one with the disability, his or her share of the proceeds will be received directly instead of being protected in the special needs trust. Is my plan practical? There may have been significant changes in your financial situation after creating your estate plan. For instance, what happens if there have been major changes in your own circumstances while the needs of your disabled loved one have remained the same? If your finances have diminished, you may want to modify your estate plan concerning which assets you would like transferred into the special needs trust. You may wish to rework the trust s directives and memorandum of intent to reflect what you now feel the trust management s focus should be in light of decreased funding. You may also want to increase the portion of your estate allocated to the special needs trust and decrease the portion of your estate you intend to leave to other family members. Are my named successor trustees and advisory committee members appropriate? The most common change to a special needs trust we see in our office concerns changing the trustee, trust protectors or advisory committee members. For example, ten years ago it may have made sense to appoint Uncle Eddy to serve as an adviser on financial investments. Now, Uncle Eddy might be in prison on federal racketeering charges, and it clearly is a good time to rethink your decisions. Luckily, most situations are not this extreme, but the point remains that lives can change drastically within a few short years. Accordingly, you should look at your trust annually to be sure it names people who best are able to perform the duties necessary to provide for and protect your loved one. Have there been major changes in my loved one s condition or benefits? You should consider any changes in your loved one s situation, including changes in government benefits,

4 Updating Your Special Needs Trust Begin with a Self Review Special Needs Alliance Page 3 of 5 living arrangements, medical condition or support systems. If there have been significant changes to benefit eligibility, it is important to bring to the meeting with your attorney all official documentation from the federal or state agency related to the change. Your attorney will then will be able to focus on how the changes in benefits affect your loved one s current and future situation as well as your overall estate plan. This meeting also will be a good time to review whether the trust beneficiary is receiving all of the benefits he or she is eligible for. In addition, if a loved one with disabilities has relocated to another state and plans to apply for benefits in the new location, it is important to ensure the trust is reviewed by an attorney in the new state to determine if changes to the trust are necessary to avoid an interruption in essential services. Have there been changes in my ability to be my loved one s advocate? Many family members serve as the primary advocate for a loved one with disabilities. If there is a question regarding your ability to continue in this role, it is very important to discuss your situation frankly with your attorney. For example, what should you do if you have been diagnosed with a psychological condition (i.e., dementia or early stage Alzheimer s) or possibly even a physical condition which might impede your ability to advocate for your loved one? Both for your sake and that of your loved one, you should make changes to your estate plan to anticipate your future inability to serve as the primary advocate. Engaging a care manager both to assess the overall benefits and support network for a loved one and to help the family plan for future contingencies is one of the most efficient, and in many cases, financially advantageous steps available. You may be able to locate a care manager by asking your attorney for a reference or directly through a helpful web site, Once you have performed this self-check of the family s circumstances and your loved one s anticipated needs and benefits eligibility, you will be able to determine if now really is the time to update your estate plan and special needs trust. Even if you decide to make no changes now, you certainly will be better prepared if or when circumstances later change on an emergency basis. As usually is the case, staying ahead of the game very likely makes a later review process much less stressful and costly. About this Newsletter: We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of

5 Updating Your Special Needs Trust Begin with a Self Review Special Needs Alliance Page 4 of 5 laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by calling toll-free (877) , or by visiting the Special Needs Alliance online. Requirements for Reprinting this Article: The above article may be reprinted only if it appears unmodified, including both the author description above the title and the "About this Newsletter" paragraph immediately following the article, accompanied by the following statement: "Reprinted with permission of the Special Needs Alliance Special Needs Alliance. All Rights Reserved.

6 The ABLE Act A New Tool for Special Needs Planning Special Needs Alliance Page 2 of 5 Only individuals living in a state that has authorized ABLE Act accounts can participate. If a given state declines to authorize ABLE Act accounts at all, its residents cannot create ABLE Act accounts. Only one ABLE Act account can be established per individual but there is no limitation on the number of individuals who can contribute to that one account. Total contributions for the benefit of a given ABLE Act beneficiary cannot exceed $14,000 in a single year. That figure is expected to increase by $1,000 every few years, but will always be keyed to the maximum federal gift tax exclusion amount. Upon the death of an ABLE Act participant, every dollar remaining in the account including gifts from family members, and earnings in the account itself must be paid to the state Medicaid agency to repay costs of care received by the participant during life. If the account should grow large enough to fully repay that Medicaid cost, any remaining funds can go to family members or other beneficiaries. If the ABLE Act account exceeds $100,000, the participant will lose eligibility for Supplemental Security Income (SSI) but not for Medicaid. The account can grow to a much higher number (between $235,000 and $452,210, depending on the state) before Medicaid eligibility is lost. While ABLE Act funds can be used to pay for qualified disability expenses (a term that is not yet fully defined), any payments for other purposes may mean the account is instantly countable as a resource, disqualifying the participant from SSI and Medicaid eligibility. Those are the most important limitations, but they will not be a problem for many ABLE Act participants. Individuals with disabilities (and their family members) might well wonder whether the ABLE Act offers a useful alternative for them. Who will most likely benefit from ABLE Act accounts? The beneficiary who saves money. Supplemental Security Income payments are limited to $733/month (in 2015). Some people who qualify for SSI receive a state supplement to that figure, and a few might qualify for additional benefits that increase that figure slightly. It can be very hard to save money on an income that is so limited. Some individuals with disabilities do manage to save money, though. For the beneficiary who is regularly trying to figure out how to spend down below the $2,000 asset limitation level, the ABLE Act might have opened up a very attractive opportunity. Is your personal account getting close to $2,000? You might be able to move, say, $1,000 into your ABLE Act account, and not have to buy a new computer, or furniture, or a prepaid burial account. Depending on your finances and the final government regulations, you might actually be able to save money for the later purchase of a vehicle, or possibly even a home.

7 The ABLE Act A New Tool for Special Needs Planning Special Needs Alliance Page 3 of 5 The beneficiary with a small inheritance or personal injury lawsuit. If you are an SSI or Medicaid recipient, and your grandmother leaves you $10,000 in her will, you will lose your SSI (and might, depending on your state, lose Medicaid eligibility as well). Same if you are slightly injured in a car collision and your net settlement is $12,000. The ABLE Act opens up a new possibility. You might be able to move your small inheritance or personal injury settlement into a new ABLE Act account, and continue your benefits uninterrupted. That way you can figure out how to spend the money over the next few months or years, rather than having to get it spent down within the next two or three weeks. Note, though, that this only works for amounts under the $14,000 annual exclusion amount at least in most cases. If the money arrives in, say, December, it might be possible to spread contributions across two calendar years. There might be other opportunities to spread payments out to fully utilize the ABLE Act. It will be very difficult, however, to handle a $50,000 inheritance or a $100,000 personal injury settlement this way. The parent (or grandparent) with a small estate and a fear of lawyers. Do you intend to leave money to your child (or grandchild, or family friend) with a disability? You almost certainly should be setting up a special needs trust. But if you really are only going to leave, say, $10,000 to your child, then you could consider making the gift to an ABLE Act account. You will subject your money to the payback requirement upon your child s death, but maybe that is not a very large concern for you. The family very interested in giving their child more autonomy and control. Maybe you are less worried about the amount of money and the possibility of having to pay back the state Medicaid agency, and more concerned about the personal dignity and autonomy flowing from your child having control over at least small amounts of money. You can t put $5,000 into their checking account because it would make them ineligible for SSI (and maybe for Medicaid). But you could put that same $5,000 into an ABLE Act account and your child could have almost full control over the use of the funds. The value of that self-determination might well be worth more than the limitations in the ABLE Act. The special needs trustee who wants to give a beneficiary more control. As with family contributions, it might sometimes be a good idea for a special needs trust to put money into an ABLE Act account. It s not yet completely clear when this might work but small payments from at least some kinds of special needs trusts might benefit the ABLE Act participant.

8 The ABLE Act A New Tool for Special Needs Planning Special Needs Alliance Page 4 of 5 There are quite a few unanswered questions. The Internal Revenue Service and the Social Security Administration both need to adopt regulations defining terms and setting final limits. States need to adopt ABLE Act account legislation (though a handful are well on their way to accomplishing that step already). The financial industry needs to actually set up the accounts. Then, and only then, will you be able to open an ABLE Act account. Will ABLE Act accounts be a huge game-changer for people with disabilities? No but they are one more tool available to individuals and their families. You should discuss ABLE Act accounts with the lawyer who helped you prepare your special needs trust. Thank Congress for introducing this new option and all of the advocacy organizations who spent years lobbying Congress to pass the ABLE Act. Finally, advocate in your state for the enabling legislation necessary before you can use the ABLE Act. About this Newsletter: We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by calling toll-free (877) , or by visiting the Special Needs Alliance online. Requirements for Reprinting this Article: The above article may be reprinted only if it appears unmodified, including both the author description above the title and the "About this Newsletter" paragraph immediately following the article, accompanied by the following statement: "Reprinted with permission of the Special Needs Alliance Special Needs Alliance. All Rights Reserved.