Using the ABLE Account: Case Study - Protecting Social Security Eligibility

Posted by Patty Manko on Sat, May 06, 2017 @ 08:35 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP, ChSNC | Alexandria  Nadworny, CFP, CTFAWorkshops Calendar

Updated June 29, 2021

Protecting Social Security Eligibility

social_security_logoAdults with disabilities become eligible for social security at age 18. Social Security (SSI) provides adults with disabilities a monthly benefit payment and health insurance if they meet a low income and asset threshold. To maintain eligibility for SSI benefits, an individual cannot have more than $2000 of resources in his or her name.  This includes cash, bank accounts, stocks, and U.S. Savings bonds.  To read a summary of SSI policies regarding the ABLE account, see the Social Security website..

Prior to your child's turning age 18, and before applying for SSI, make certain that they meet this requirement. One strategy could involve transferring money to an ABLE account as this can help reduce savings beneath the $2,000 threshold and avoid the spend-down process.

Case Study 1: When an SSI recipient receives an inheritance.

The Situation:

inheritance_pexels-cottonbro-6851698During the settlement of an estate, the personal representative (PR) - also known as the executor - of the estate discovered one of the beneficiaries, whom we will call Katie, was receiving government benefits. The PR was required to distribute $33,000 to Katie prior to the projected closing of the estate in February of the following year. While Katie could definitely use the funds to pay for furnishings in her home and some much- needed dental work, receiving the inheritance directly would  bring her above the $2,000 asset limit and disqualify her from the important benefits she was receiving. 

The Options Considered:

In discussing the current situation with Katie and the PR, we discussed options for the purpose of educating the parties involved of establishing a 1st party supplemental needs trust (also known as a d4A or Payback trust) where the beneficiary could transfer the entire inheritance to the trust and continue to receive her benefits. 

We also discussed the option of distributing a portion of the inheritance this year and then again next year using an ABLE account. If the PR distributed $18,000 this year, the beneficiary would be able to buy new furnishings that she needed with about $2,000, get the needed dental work for another $2,000, and deposit $15,000 (2021 limit) into an ABLE account, assuming she had made no prior deposits into the ABLE in this year. The PR would then need to make the final distribution of about $15,000 to the beneficiary by the February of the following year. If the PR does this, the beneficiary could then keep $1,000 in her savings account (still under the $2,000 limit) and add an additional $15,000 to her ABLE account. The beneficiary would then able to use these funds for qualified disability expenses as needed without losing her SSI income and other benefits.

The Benefits of Using an ABLE Account:

Because of the amount of the inheritance, Katie did not need to go through the expense of hiring an attorney to establish a 1st party supplemental needs trust, find a trustee, file taxes, and then have to ask someone for money when she needed it.  She was already living independently and managing her own expenses fairly efficiently.  The ABLE account allowed her to continue to receive her benefits and use the funds in the account as she needed them.

Case Study 2: SSI Impacted by an ABLE account

Source: ABLE National Resource Center

Mario has $101,500 in his ABLE account and $1,500 in his checking account. Since his countable resources are now $3,000 ($1,500 overage from ABLE account + $1,500 from checking account), his ABLE account has caused him to exceed the resource limit and his SSI payments are indefinitely suspended.

Mario continues putting money in his ABLE account for 24 more months and his indefinite suspension continues. Then, with the account balance standing at $107,000, he takes a $21,000 distribution to purchase a new car (a Qualified Disability Expense), dropping his account balance to $86,000 at a time when his checking account balance stands at $850. Since the ABLE account balance is below $100,000 it is once again exempt and his only countable resource is the $850 in his checking account. Mario’s SSI payments will be restored without the need for a new application. Mario had Medicaid eligibility continue when his SSI payments were suspended for 24 months based on excess resources caused by the ABLE account.

To read additional information visit our webpage or download our E-Book, The ABLE Account and Special Needs Planning

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.


The experiences described here may not be representative of any future experience of our clients, nor considered a recommendation of the advisor's services or abilities or indicate a favorable client experience. Individual results will vary.

Investing involves risk including loss of principal. Prior to investing in an ABLE account, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits available for investments in such state’s ABLE program.

 

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