Lifetime Alternative for Special Needs Children and Adults

Caring for a child with longer-term disability needs can be expensive for parents.  For those who wanted to leave money for their child to ensure their continued care after both parents were gone, the options were often limited.  Before 2014, if parents saved for their child and received federal benefits, once a certain dollar amount was reached, those benefits could be discontinued.  The Achieving a Better Life Experience (ABLE) Act, passed by Congress and signed into law in 2014, creates the ability to save for the needs of these children after the parents are gone.

The Able Act

Many parents of special needs children worry about the welfare and care of their child after their passing.  With many special needs children, many parents understand that their child will continue to live at home after entering adulthood.  The ABLE Program allows for parents of special needs children/adults to gain peace of mind when planning for the future.

Beginning after December 31, 2014, the Able Act authorizes states to create an ABLE Program designed to help parents of children with long-term disabilities with saving accounts for the continued care of their child.  Features and benefits of ABLE Accounts include:

  • Earnings and contributions to ABLE Accounts are not taxed.
  • Funds in ABLE Accounts are not part of any means-tested benefit programs such as Supplemental Security Income (SSI) or Medicaid as long as the ABLE Account does not exceed $100,000.
  • If funds exceed $100,000, SSI benefits can be suspended, but not terminated.
  • ABLE Accounts are for individuals who become disabled before age 26 and receive either Social Security Disability Insurance (SSDI) or SSI or who file a disability certification under rules to be written at a later date.
  • Anyone may establish and ABLE Account including the disabled individual.  
  • Only one ABLE Account per eligible disabled individual with total aggregate annual contributions not to exceed an annual gift tax exemption of $14,000 is allowed under the law.
  • ABLE contributions are treated as gifts.  This means that if a donor puts more than $14,000 into an ABLE Account, a gift tax return must be filed.
  • However, unless the donor has made more than $5.49 million of lifetime taxable gifts, no gift tax will be due in 2017.

Qualified Disability Expenses

There are many different types of qualified disability expenses.  These include expenses related to:

  • Education
  • Housing
  • Transportation
  • Employment training
  • Employment support
  • Assistive technology
  • Personal support services
  • Health
  • Prevention and wellness
  • Financial management
  • Administrative services
  • Legal fees
  • Oversight and monitoring expenses
  • Funeral and burial expenses

Any distributions of ABLE Account funds for nonqualified expenses are subject to a 10% penalty in addition to the income tax due on the amount.

Roll Over and Disbursements

Any assets in an ABLE Account can be rolled over into another ABLE Account for the qualified beneficiary or any qualifying family member without penalty.  Any money left in an ABLE Account after the time of the beneficiary’s passing can be used to reimburse a state Medicaid agency for any costs for services and benefits provided during the lifetime of the beneficiary.  Therefore, an ABLE Account should be considered as an expense account, not a wealth accumulation mechanism.

Medical Planning

The expense of medical treatment for special needs children can be extremely expensive even for parents with insurance.  For parents of special needs children with private insurance, understanding what a policy does and does not cover is vital for planning future needs and expenses.  Prior authorization is often needed for specialized services, equipment, and therapy.  

HMO’s and PPO’s

Many insurance coverages today are provided through a health maintenance organization (HMO) or preferred provider organization (PPO).  Any services or specialists needed by a special needs child must be part of the network of providers in order for the HMO or PPO in order to be eligible for payment.  Out-of-network care can be sought, but check with the HMO or PPO first to get an understanding of the out-of-pocket costs that will have to be paid.  Claims that are denied can be appealed, so don’t give up if the initial claim is kicked out.  Requesting a case manager for a child’s insurance claims can allow for consistency in claims.  

Other Medical Considerations

In the recent past, students and disabled persons were typically covered until their 22nd birthday under many private health plans.  However, by September 23, 2010, all young adults under age 27 are able to continue coverage under a parent’s policy.  Depending on the health insurance plan, extended coverage beyond this age may be available for a disabled dependent.  If health insurance plans stop coverage after age 26, a special needs child may still be eligible for Medicaid coverage.  The county health or Social Security office are good sources of information.

For those without private health insurance, the Social Security office or county social services agency can determine what types of assistance are available.  For those with low income and limited assets, Medicaid is available.  Medicaid is a health care program for low-income individuals.  If a child is eligible for SSI benefits, in many states that child is automatically eligible for Medicaid.  In some states, a child may be eligible for Medicaid even if they don’t qualify for SSI.  Finally, Medicaid benefits are based on a special needs child’s own income and assets, even if the child is over 18 and lives at home with parents.  

The State Children’s Health Insurance Program (SCHIP) is a program available for children whose family income is too high to qualify for Medicaid, but too low to afford private health insurance.  For all available programs, check with the local Social Security or county health department.   

When planning for your future and the future of your special needs child, consider the eligible medical programs, the amount of expenses that will be incurred, and the amount of funds to deposit into your child’s ABLE Account.  Consulting with a qualified financial planner is the first step in planning your special needs child’s future.

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