Ensuring the long-term financial stability of a loved one with special needs can be an exceptionally confusing process. Public programs like Medicaid and Supplemental Security Income (SSI) will provide for them and pay for their services for the rest of their life. But their eligibility for these programs depends on them staying under strict $2,000 resource limits. Several laws have been passed allowing families in the know to set aside millions of dollars for people with special needs without affecting their eligibility for low-income programs. The two most commonly used plans today are special needs trusts and ABLE accounts. You can work with a financial advisor to make sure your finances are in order and you create a financial plan for your child.
Understanding Resource Limits
Supplemental Security Income (SSI) and Medicaid both have limits on an individual or couple’s countable resources for them to be eligible. SSI is a federal program administered by the Social Security Administration, so its limits are standard across the US.
The SSI resource limit is $2,000 for an individual and has not changed since 1984. If it had kept pace with inflation, the resource limit would now be almost $6,000. Going over the resource limit results in an immediate total loss of benefit eligibility for the month you go over.
If during a periodic benefit review referred to as a redetermination, they discover that someone has been over the resource limit, they’ll be ineligible and have to pay back any benefits they received. If they go over the resource limit for twelve consecutive months, benefits will terminate and they’ll need to reapply.
Medicaid is administered by each state and while many count resources the same way as SSI, some have different resource limits and slightly different ways of counting resources. You’ll need to check with your state to see what their resource limit is and what assets they exclude.
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How SSI Counts Resources
The Social Security Administration counts almost everything with a cash value or that can easily be converted to cash as a resource when considering SSI eligibility. They will exclude the value of a single property used as a primary residence and a single vehicle used for transportation. Up to $100,000 in an ABLE account is excluded. The full balance of a special needs trust can be excluded if Social Security Administration staff determines the trust meets requirements.
Achieving a Better Life Experience (ABLE) accounts were created with the passage of the ABLE act of 2014 and are an exciting, relatively new option.
ABLE accounts function similarly to 529 plans. Anyone can contribute to them and some states offer tax deductions for contributions to ABLE accounts. Funds in ABLE accounts can be invested and money in the account grows tax-free and can be withdrawn tax-free for qualified disability expenses.
Qualified disability expenses include:
The maximum total annual contribution limit to an ABLE account is $16,000 in 2023. While there is no limit to how much money you can have in an ABLE account, only the first $100,000 is excluded from SSI benefits. Limits for Medicaid depending on your state, so check with your state’s Medicaid office.
Special Needs Trusts
Special needs trusts allow you to shelter far more money for your loved one than other avenues. If you’ve already purchased real estate and a vehicle and funded a maximum $100,000 in an ABLE account, it may be time to consider opening a trust.
Special needs trusts are complex legal instruments and can cost thousands to tens of thousands to establish and maintain. Even after spending all the money to establish a trust with a reputable attorney, it still may not meet the requirements.
Processing and finalizing trust decisions is a process that can take several years within the Social Security Administration, all while your loved one’s benefits are on hold. Training within SSA is limited on trust determinations and decisions are frequently made incorrectly on trusts, counting them as a resource and denying benefits incorrectly.
You’ll have the option to appeal if this happens, but it can still take more time, paperwork and headache than it’s worth if you could sink the money into an ABLE account, primary residence and vehicle for your loved one instead.
All ABLE accounts and most special needs trusts include a controversial feature commonly called “Medicaid payback” or “Medicaid clawback”. This provision states that when the account holder of the ABLE account passes away, Medicaid can be paid back for services it provided to them out of the remaining balance.
Medicaid will only take back money for services it provided after the opening of the account. For example, Jane Smith received $5,000 in Medicaid services annually since her birth in 1970. She opened an ABLE account on January 1st, 2020 and passed away on January 1st, 2022 with $100,000 in her ABLE account. Medicaid would only request $10,000 for the two years of services it provided after her account opened and before she passed away.
Special needs trusts typically work in a similar way, with the money remaining in the trust after the beneficiary’s death going to pay back Medicaid services provided after the establishment of the trust.
The Bottom Line
If your loved one depends on SSI checks or Medicaid benefits, don’t bother with a special needs trust unless you are looking to leave them a substantial estate. Contributing to an ABLE account grants you a tax deduction and won’t require a lengthy approval and appeal process. Using these programs efficiently can greatly increase the financial opportunities of someone with disabilities.
Tips for Saving
It can be difficult to find a plan that works for you when it comes to setting money aside for various things. This can become even more difficult if you have a child with special needs. A financial planner can help you create the right savings plan and make sure your child is set up financially. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You should think about setting up an emergency fund for your children. That way, when they fall on hard times they will have something to fall back on. You can even use one of the best savings accounts to get started.
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