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On April 18 , 2016 , PA Gov . Tom Wolf signed the ABLE Act ( or Achieving a Better Life Experience Act ) into law . Many families with children and loved ones with special needs or disabilities have anxiously awaiting this federal law to be enacted in Pennsylvania so they , too , can save in a way to benefit their child or loved one even if he or she does not attend college .
Families with a member living with disabilities share the common desire to plan for the stable long-term care of their loved one . Between extensive medical expenses and equipment , housing , transportation , legal fees , education , and so on , families take advantage of every means of public assistance available , but often times , it usually ends up running short . Therefore , disabled individuals and their families have to arrange a supplemental way to protect their assets to allow additional funds to be used to enhance the disabled individual ’ s quality of life , meanwhile ensuring that public benefits are not lost ( supplemented but not supplanted ).
Traditionally , the predominant way families and disabled individuals did this was through the “ special ” or “ supplemental ” needs trust ( SNT ). When properly drafted , SNTs enable a disabled beneficiary to concurrently use property held in trust for their benefit while receiving essential needs-based government benefits . However , with the ABLE Act disabled individuals and their families now have another savings option to supplement their public benefits .
ABLE was modeled after the 529 education savings plan , and designed as a way for people with disabilities and their families to save money exceeding the $ 2,000 resource cap without disqualifying them from receiving SSI and Medicaid benefits . Unfortunately , the law as passed has significant limitations .
KEY DIFFERENCES IN SPECIAL NEEDS TRUSTS AND THE ABLE ACT
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For example , funds in an ABLE account may only be used for a narrow list of disability related expenses , while SNTs broadly allow funds to be spent on items and services contributing to the happiness and comfort of the disabled individual . ABLE is also subject to the maximum contribution amount noted under the annual gift tax exclusion ( currently $ 14,000 per year ) whereas SNTs have no limit as to how much can be contributed each year . Additionally , leftover assets in the ABLE account must be used to repay Medicaid , even when the account was funded by someone other than the disabled individual . In a properly drafted third-party SNT , upon the death of the disabled individual , the remaining assets can be designated by the trustee to go to another family member rather than to the government as a payback . ABLE savings accounts grow tax-free and the costs to establish are considerably less than establishing a SNT . There are age restrictions for becoming eligible for an ABLE account where no such restriction exists for SNTs .
The bottom line is : do not feel that you must choose one or the other because SNTs can work well in conjunction with an ABLE account to maximize savings for your loved one . You should consult with an experienced estate planning attorney and a financial advisor before deciding how to save in the most cost-efficient way to protect your disabled or special needs loved one though a SNT or ABLE account .
This Industry Insight was written by Brooke B . McMorrow , Esquire of McMorrow Law , LLC .
Attorney Brooke McMorrow is the Managing Attorney and Founder of McMorrow Law , LLC , located in Wexford , PA . Her firm focuses on helping individuals and their families with estate / trust planning , probate and estate administration , guardianships , adoption , and family law . Attorney McMorrow is also a certified mediator and is collaboratively trained . She is licensed to practice in Pennsylvania and New York . For a free initial consultation call 724.940.0100 or visit our website at www . mcmorrowlaw . com
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