ABLE 529s vs 3rd Party Supplemental Needs Trusts
One of the most exciting things the Obama administration has accomplished with respect to caring for those with disabilities has been the creation of ABLE 529 accounts. At first glance these accounts appear very much like a 3rd Party Supplemental Needs Trust.
The advantage to a ABLE 529 over a 3rd Party Supplemental Needs Trust are cost, confidence, and ease of administration. Setting up a 3rd Party Supplemental Needs Trust usually requires attorney time for drafting of the trust. Then you have the open question of “will this trust be approved” when it is submitted for SSI and Medicaid etc., often there is a back and forth period between the attorney and the government, sometimes with the need to revise the trust etc. Finally you need a trustee, corporate trustees are expensive, private family may lack the investing acumen and also fail to keep proper records etc. and jeopardize the trust by causing it to be declared a countable resource. The ABLE 529 at first glance is a Supplemental Needs Trust in a can. Fill out a few forms, submit some proof of disability etc. and voila you have a Supplemental Needs Trust with no need to have it drafted and absolute certainty it will be approved.
The single biggest difference with a 3rd Party Supplemental Needs Trust and ABLE 529 is that with the ABLE 529 the money is owned by the beneficiary, it is available to the beneficiary ( while not being a countable resource for benefits). The beneficiary has the ability to withdraw the funds as they see fit, spend it as they see fit, and presumably keep the necessary records to document that their expenditures were appropriate. On the one hand this gives the beneficiary a level of autonomy that in fact may be the goal in planning for a disabled person in the hope of their having a life that is as normal as possible. On the other hand, depending on the nature of the disability, the nature of the person in general, etc. this may not be desirable. A Trustee managing the trust may be better suited to ensuring the funds are not spent to soon and depleted before the life span of the beneficiary was completed. The Trustee may be better at keeping the paperwork up to date to ensure that all expenditures meet the requirements of the various government agencies. This can be particularly important for those with mental or behavioral disabilities, but can also be important for many people with only physical disability who, like many non disabled, simply cannot manage money for the long term and instead have spendthrift tendencies.
There are many people who are not under a guardianship but who need a gatekeeper to manage their money. For example Social Security “Representative Payee” to manage their benefits. The Supplemental Needs Trust manages this indirectly because of the requirement they never giving the beneficiary money directly. The combination of Representative Payee and Supplemental Needs trust works in cases of fiscal irresponsibility mainly because the beneficiary never gets their hands on the money. It is unclear how this would be achievable with a ABLE 529 at this time. Its a question I’d like to see clarified.
A huge open question with ABLE 529s regards housing and how they will interact with HUD Section 8 subsidies. Special Needs Trusts are having serious challenges threading the needle between the differing program requirement of HUD and SSI/Medicaid. Of note ABLE 529 expenditures for housing will not reduce SSI/Medicaid, at least the way I read it but this should be verified. SNT expenditures would reduce SSI under the In Kind Support and Maintenance ( ISM ) rules. It may be that HUD will treat ABLE more favorably because it is a government program, but that remains to be seen. Currently for non HUD Section 8 recipients I think housing money should be routed into the ABLE account and then back out to pay for rent without reducing SSI.
The other issue that limits the ABLE account is the $14,000 annual contribution limit, and to a lesser extent the limit on total assets in the account. A beneficiary who will be left a significant amount of money will require a means to manage periodic distributions into the ABLE account. The natural mechanism for that is a separate trust that exists along with the ABLE account. Thus the ABLE account will not replace a 3rd Party Supplemental Needs Trust in the near term but instead will be a valuable tool complementing a Supplemental Needs Trust. The able account can help to provide a channel for routing funds to work around ISM issues. And issues around finding a competent trustee and reducing costs of establishing a 3rd Party Supplemental Needs Trust may be handled by using a competent Pooled Trust solution.