Feb 15, 2022 New York ABLE Accounts and Special Needs Trusts

Providing for a disabled family member’s future is a challenging task because you don’t want your decisions to jeopardize the government benefits for which they’re eligible. Eligibility for key federal benefit programs like Supplement Security Income (SSI), Medicaid, and SNAP,^[i] is determined by the disabled person’s income and access to financial resources. Experienced estate and trusts lawyers at Ely J. Rosenzveig & Associates can explain the most effective strategies to preserve assets for the benefit of a disabled person in a way that does not affect their eligibility for other benefits.

This blog post will discuss some of the primary features of various options that secure income for disabled beneficiaries, protect their eligibility for public benefits, and offer tax benefits under IRS rules. The complexity of these subjects prevents an exhaustive treatment here, but the lawyers at Ely J. Rosenzveig & Associates are always available to discuss them in more detail when you contact us.

Special Needs Trusts (SNT)

A special needs trust (SNT), also known as a supplemental needs trust, is a legal instrument created to hold and manage financial assets or property for the benefit of a disabled person. The donor who establishes the trust nominates a trustee to manage the trust assets. Since the assets belong to the trust and not the disabled beneficiary, the assets are not counted as ‘their’ available resources for determining SSI or Medicaid eligibility.

Any SNT assets must be used exclusively for the beneficiary’s uninsured expenses or for the enrichment of their life. Only SNT payments for the beneficiary’s food, clothing, or shelter would adversely affect their SSI and Medicaid eligibility.

A SNT can be created by a Third Party for the benefit of a disabled beneficiary, or by the disabled person as a First Party trust. Each has different requirements and provides different benefits, but both offer the disabled person the benefit of distributions to improve the quality of their daily life that will not disqualify them from SSI or Medicaid.

Third Party Special Needs Trust:

This SNT can be established with any funds not belonging to the beneficiary. The beneficiary can have no control over the SNT assets. If a beneficiary had the power to control the SNT, then SSI and Medicaid would count the assets in the SNT as available resources for determining the beneficiary’s eligibility for benefits.

The Third Party SNT is not obliged to reimburse Medicaid for the costs of the beneficiary’s healthcare once the beneficiary passes away. The assets can be distributed to other parties as directed by the terms made by the trust’s creator (trustor or settlor).  

One caveat: If the third party Special Needs Trust is being established by the grantor to make themselves eligible for Medicaid benefits – by transferring assets to a disabled individual – such funds can eventually be subject to Medicaid recovery. The public benefit programs, in such instances, require the trust to be solely for the benefit of the disabled beneficiary in order to enjoy the advantage of not counting for program eligibility.

First Party Special Needs Trust:

As the name implies, this SNT is created by the beneficiary with their own assets, or by a parent or court acting on the beneficiary’s behalf. These SNTs are sometimes called Self-Settled Trusts. First Party SNT’s are often funded by proceeds from a large insurance settlement or an inheritance, but it could also be created to hold a person’s wealth accumulated prior to the onset of the disability.

First Party SNTs must make any assets remaining after the death of the beneficiary available to Medicaid for  reimbursement for the cost of care paid by Medicaid during the beneficiary’s life.

New York ABLE Act Accounts

SSI eligibility is determined by measuring the income and available resources of applicants on an ongoing basis. Generally, an individual may not have more than $2,000 in available countable resources to qualify for SSI benefits. (A list of non-countable resources can be found here.) However, in 2014, Congress enacted the Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE) permitting recipients of SSI or SSDI to hold up to $100,000 in an ABLE savings account without the Social Security Administration counting it as an available resource. A negative aspect of an ABLE account is its requirement to repay Medicaid when the disabled beneficiary passes away.

Only a person who the Social Security Administration (SSA) has found to be disabled before their 26th birthday is eligible to maintain an ABLE account. Unlike other trust accounts (like SNT’s) which only require that the beneficiary meets the SSA’s disability definition, ABLE account holders must have applied for and been granted SSA disability benefits. 

Importantly, the beneficiary of the ABLE account funds usually must spend the money before the end of the month in which they withdraw it. If they withdraw ABLE account funds and these funds are still in their checking account when the month ends, those funds will be counted as income for that month for the purposes of assessing continued eligibility for public benefits (SSI, SSDI, Medicaid). In some cases, if money is withdrawn from an ABLE account for a qualified disability expense and earmarked for that purpose, retaining the funds beyond the month may be allowed to facilitate a transaction that may take longer than a few weeks. For example, the purchase of new mobility equipment may require a deposit while the balance is held awaiting delivery.

An especially attractive feature of the ABLE account is that anyone can contribute to the account. While contributions to ABLE accounts are not tax deductible, qualified distributions of donated funds to the beneficiary are tax exempt. Only distribution of interest earned on the account is taxable to the beneficiary.

Allowed ABLE Account Distributions for Qualified Expenses

The funds withdrawn from an ABLE account are deemed non-countable income, and are tax exempt, if used for a qualifying disability related expense. The money can be used for any of the following expenses:

• Education
• Housing
• Transportation
• Employment training and support
• Assistive technology and related services
• Personal support services
• Health
• Prevention and wellness
• Financial management and administrative services
• Legal fees
• Expenses for ABLE account oversight and monitoring
• Funeral and burial

Contact the law firm of Ely J. Rosenzveig and Associates for More Details.

This blog post is merely an introduction to the complex but important strategies necessary to provide for your disabled loved-ones, protect your assets, and help you or your loved one qualify for, and enjoy continued access to public benefits. Reach out to us today for more information about setting up a protective financial structure around your family.

Call Ely Rosenzveig and Associates at 1.914.816.2900
or email us at: [email protected]

^[i] SNAP is the Supplemental Nutrition Assistance Program which subsidizes food costs for eligible recipients.