Estate Planning for Disabled Children: ABLE vs. SNT

An act of Congress in 2014 gave some disabled persons the opportunity to have tax free savings account similar to 529 plans for education savings. It is called Achieving a Better Life Experience Act or ABLE. With some exceptions, the funds in an ABLE account are not counted as a resource, and earnings in the ABLE account are not taxable as income.

dolores-bannerWhen I recently worked on a will for a client with a disabled child, this question came up: Should she leave that child’s share of her estate to an ABLE account her child had opened, or create a Supplemental Needs Trust (SNT).

My legal research showed me there are major differences between the two. ABLE accounts can be a good tool for families with disabled children but they should not replace SNT trusts as an estate planning tool.

The general rules for ABLE accounts are:

  1. The person must be eligible for disability benefits before the age of 26.
  2. No more than the federal limit for donee-tax exclusions, currently $14,000, may be deposited in any given year from all contributors.
  3. If the account total exceeds $100,000, the amount over that will be a countable resource. The amount less than that is an available resource that is not counted as an asset for purposes of qualifying for benefits.
  4. Distributions for qualified expenses are not income distributions.
  5. If there is anything left in the account at the death of the beneficiary, it must be used to repay state for Medicaid assistance unless it is rolled over to an ABLE account of a family member.

The advantage of an ABLE account is that the individual can keep his or her state aid, yet have funds to pay bills that are not covered by Medicaid and not pay income tax on the account earnings.

For example, a parent could give up to $14,000 per year to his or her child or the disabled person can have income and a savings plan. Previously the disabled person was limited as to what he or she could keep as assets. Unlike an SNT, where the trust income is taxed at higher trust rates, the income in the ABLE account is not taxable.

For estate planning purposes, the ABLE account is not going to be helpful for most people. The annual contribution limit alone is much smaller than most estates and the account cap may be exceeded as well with an inheritance.

With a SNT trust there is no limit to how much can be in the trust. The SNT can supplement any needs not covered by Medicaid but allows the child to say on assistance. It can be used to provide needs not covered by the state, like a vacation or dinner out occasionally.

I had a disabled client whose biggest thrill each year was a long weekend on Lake George. A SNT would help pay for such a trip. A key factor of a SNT is that the parent directs who receives any funds that are not used during the life of the disabled person. A properly prepared SNT also assures that it is not available to pay the state back for assistance. For flexibility, the SNT could allow annual donations to an ABLE account.

My client’s daughter made a good decision to open her ABLE account. She is a working disabled person, so she can put extra savings into it and have a reserve for medical or housing expenses not covered by Medicaid.

For her mother, the supplemental needs trust or SNT in her will is the right way to go. She can provide for her daughter having some extras in life and if it is not all used for her daughter’s needs then it can be left for her grandchildren or whomever she directs.

After I spent some research looking at the new ABLE legislation and the use of the SNT, I realized there is a place for both of these for disabled persons and their families.

To learn more, contact Dolores R. Schiesel, a Cramer & Anderson partner in the Kent office whose practice areas include estate planning services, including Elder Law & Special Needs, along with 
Land Use & Environmental Law, Municipal Law and
Residential & Commercial Real Estate Law. She may be reached at (860) 927-3568 or by email at drs@crameranderson.com.

Cramer & Anderson also has offices in New Milford, Litchfield, Danbury, and Washington Depot. For more information, call the New Milford office at 860-355-2631 or see the website at crameranderson.com.