By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Special Needs and Able Account Attorney

I received a call from a client. She told me that her disabled brother was named as an heir to part of their uncle’s estate.  He lives in a group home and she was concerned that his inheritance would (approximately $200,000) jeopardize his government benefits and continued eligibility to reside in the home.

Prior to calling me, she did a little research on the internet.   She learned that in order for her brother to preserve his benefits, he has two options; either create a Special Needs Trust to receive the inheritance or set up an ABLE account into which the proceeds could be placed. She wanted to know more about an ABLE Account. So what is this ABLE Account?

An ABLE account is relatively new.  It’s full name is “Achieving a Better Life Experience Act of 2014”. It was passed by Congress to allow the creation of accounts for the benefit of disabled individuals.  While the law is now 3 years plus age it has taken some time for financial institutions and organizations to begin offering the accounts.

I was asked my opinion.  The client was leaning towards setting up an ABLE account.  “I think it is easier to open and manage an ABLE account than an SNT and I don’t need an attorney if we use an ABLE account”, she told me, “What do you think,” she asked.   I told her she was wrong! An SNT in this case is the only option.   Why you may ask?

First off, an ABLE account can only be funded with $15,000.00 per year. Secondly, if the total account value exceeds $100,000, eligibility for monthly SSI benefits will be suspended.   Losing SSI will then cause a loss of Medicaid benefits.  These reasons alone make an ABLE account impossible here.

But there’s more.  Even if the inheritance was small enough to meet the financial limits above, her brother’s disability must have occurred before he reached the age of 26. When I asked her the details about his condition and diagnosis it was clear to me that his disability only existed after that age.

While my client thought that the ABLE account was the equivalent of an SNT at much less legal cost to setup than the SNT, she couldn’t have been more wrong.  There are other important differences between the two.  ABLE accounts cannot hold physical assets such as real estate or vehicles because they are not separate entities.  SNTs on the other hand can hold such assets.

ABLE accounts have a Medicaid pay back provision which requires that any money left in the account when the disabled individual dies must be used to repay Medicaid for any benefits paid during the individual’s lifetime.   A third party SNT – one created and funded by someone other than the disabled individual (in this case, the Uncle) – does not require a pay back provision.   Anything remaining in the trust at the individual’s death can benefit other family members.

Finally, ABLE accounts are owned by the disabled individual who has full access to the account.  SNTs are managed by a trustee.  This is important to families concerned that the disabled individual may not be able to handle his/her own money.  While a guardian can be appointed to handle the funds, that only is possible with a declaration of incapacity.   It’s possible, however, that a Power of Attorney could be created to help administer the ABLE account but that triggers another separate discussion.

So the next time that you hear something about an ABLE account, you now have a much better idea of how it works.  While it might be suitable in certain situations it doesn’t replace the need for SNTs.

To discuss your NJ Special Needs and ABLE Account matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.