ABLE Accounts as an Estate Planning Tool for Special Needs Children

Did you know that if you die without proper planning, the assets your special needs child inherits may make the child ineligible for government assistance? Estate planning is important for everyone, especially when disabled children are involved. Traditionally, attorneys use an estate planning tool called a special needs trust. The special needs trust is used to pay for expenses that are not covered by government benefits. Upon the death of the parents, the assets inherited by the special needs child are protected from being used up for the child’s basic needs paid by government programs. Today, there are additional tools attorneys can use, including ABLE accounts. But are ABLE accounts right for you?

On December 10, 2014, the President signed The Achieving Better Life Experience Act (ABLE) which, in part, allows individuals with disabilities to have one ABLE savings account set up for them featuring tax-free growth to help pay for expenses including education, health care, transportation, and more. These accounts are designed to allow disabled individuals to maintain eligibility for government benefits they might otherwise not be eligible for based on their current means.

Although ABLE accounts are simpler than special needs trusts, there are several disadvantages to using them. First, ABLE account deposits are limited to the maximum annual gift exclusion amount. For 2015, the annual exclusion amount is $14,000. Second, lifetime deposits cannot exceed the lifetime contribution limitations established by the state in which the account is opened. In Kentucky, the lifetime contribution limit is $235,000. Third, in order to be eligible to establish an ABLE account, the onset of the individual’s disability must have occurred prior to age 26. Fourth, any amount in an ABLE account, including earnings, in excess of $100,000 is considered a resource of the beneficiary and can make the individual ineligible for government assistance. Lastly, and most importantly, any funds remaining in an ABLE account upon the death of the disabled individual must be paid to the government to the extent that the individual received government assistance.

If you are in a situation where your special needs child might become ineligible for government assistance when you pass away, utilizing proper estate planning tools becomes very important. The rules for both the special needs trust and the new ABLE savings accounts are very complex and it is highly recommended that you work closely with your attorney, CPA, and financial advisor.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial, tax, and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

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