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ABLE Accounts are now available in Louisiana, and offer a useful option to allow beneficiaries to save, and spend, their own money.
Some seem to think that they are a suitable replacement for having a Special Needs Trust. Here is a rundown of the advantages and disadvantages of the ABLE account compared to the Special Needs Trust (SNT).
An ABLE Account is easy to set up and can even be set up entirely online. They are free, which is a major savings over the SNT which costs at least hundreds of dollars. SNT’s also tend to be complicated and require the expertise of an experienced attorney.
The SNT has a significant advantage here. An ABLE account can only have $14,000 deposited to it each year and because it’s basucally just a bank savings account, can only accept cash. An SNT has no limit on the amount of money it accepts and can hold non-cash assets like real estate.
There are issues when an ABLE Account has more than $100,000. At that point, SSI benefits are suspended until the account is spent down to under $100,000. This does not threaten services, though. There is no maximum to an SNT.
The ABLE account must reimburse Medicaid for its expenses when the beneficiary passes away. This will most likely completely deplete the account. An SNT has to have this kind of payback provision only when its assets come from the beneficiary. If it is funded through a third-party, like ones that are funded through a Last Will and Testament of a parent or grandparent, no payback is required.
The beneficiary can manage their own ABLE account assuming they are capable of managing their finances generally. An SNT must be managed by someone else. The beneficiary can never be the trustee.
The money in an ABLE account is tax free. It can be spent without tax consequences and no tax return needs to be filed. An SNT generally has to file a tax return every year and there can be steep taxes to pay if it earns income without spending it on its beneficiary each year.
To qualify for an ABLE account, your disability has to have started before the age of 26. There is no such restriction for SNT’s. You are limited to 2 withdrawals per month from an ABLE account. There are no such limitations on an SNT.
Any disabled person who relies on public benefits such as SSI or Medicaid needs a Special Needs Trust if there is the possibility that they will inherit any significant property during their lives. For those that can manage their own money, the ABLE account offers a useful supplement to the SNT to empower them to make their own decisions and have more direct control in their lives.