Working Together: ABLE Accounts & Special Needs Trusts with Matt Syverson

Sep 24, 2024

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The definition of synergy is two things put together, having an effect greater than the sum of the parts.

Synergy can play a beneficial role in family finances. A case in point is an ABLE account working together with a special needs trust for a person with disabilities. Matt Syverson joins us today to talk about it.

Matt Syverson is Managing Partner & Senior Wealth Advisor for Sound Stewardship in Overland Park, Kansas. He is also a Certified Financial Planner (CFP®) and a Certified Kingdom Advisor (CKA®).

What is an ABLE Account?

An ABLE account, short for “Achieving a Better Life Experience,” is a tax-advantaged savings account specifically designed for individuals with disabilities. It allows them to save money and work without losing access to crucial government benefits like Supplemental Security Income (SSI) and Medicaid, which have strict asset limits of $2,000 for individuals and $3,000 for couples. The key features of an ABLE account include:

Eligibility: Available to those who are blind or disabled before age 26 (rising to 46 in 2026).
Savings Opportunity: Allows individuals to work and save without exceeding government asset limits.
Tax Benefits: Often provides state tax deductions similar to 529 college savings plans.
Contribution Limits: The lifetime maximum contribution limit aligns with 529 plans but should stay under $100,000 to avoid affecting SSI or Medicaid.
Qualified Expenses: Can be used for day-to-day needs like food and rent, excluding vices like alcohol or gambling.
No Impact on Government Benefits: ABLE account balances won’t disqualify the individual from receiving SSI or Medicaid.

It’s important to note that in most states, there is a Medicaid payback provision, which allows the state to recover funds from the ABLE account to cover medical bills after the account holder's passing. However, some states, including Kansas, have removed this clawback provision, making these accounts even more attractive for families.

What is a Special Needs Trust?

A special needs trust (SNT) is a more established tool designed to protect individuals' eligibility for government benefits while allowing families to manage significant assets. This trust can hold homes, vehicles, real estate, investments, and various accounts like IRAs or Roth IRAs. Key benefits of a special needs trust include:

Asset Management: Can hold a wide variety of assets that would otherwise disqualify someone from receiving government benefits.
Estate Planning Certainty: Spells out how the assets will be managed and distributed after the individual’s passing.
No Medicaid Clawback: Unlike ABLE accounts, SNTs are not subject to Medicaid payback provisions, providing greater long-term financial security.
Spending Flexibility: Can cover a wide range of expenses not covered by government programs.

However, special needs trusts come with a downside. If the trust is used to pay for food or rent, the SSI benefit will be reduced by $334 per month. Additionally, any direct payments to the individual from the trust can affect SSI income, so careful management is required.

How Can ABLE Accounts and Special Needs Trusts Work Together?

Combining an ABLE account with a special needs trust can offer significant advantages for families. The ABLE account can be used for day-to-day expenses, while the special needs trust can be preserved for larger, long-term financial goals. This separation allows for greater flexibility and financial independence.

Day-to-Day Needs: An ABLE account can cover immediate expenses like food and rent without reducing SSI benefits.
Long-Term Planning: A special needs trust can hold larger assets and ensure they are passed on to future beneficiaries without impacting government benefit eligibility.
Tax Benefits: ABLE accounts enjoy tax-free growth and withdrawals for qualified expenses, while special needs trusts are fully taxable each year. Therefore, it is beneficial to use the ABLE account for specific expenses to maximize tax savings.

Why Go Through the Effort?

Setting up both an ABLE account and a special needs trust takes planning, but the benefits are well worth it. ABLE accounts are simple and inexpensive to establish, offering tax advantages and flexibility for everyday expenses. Special needs trusts, while more complex and costly, assure that your loved one will retain their benefits and that their assets will be managed according to your wishes.

When creating these plans, it’s crucial to consult with an attorney and a financial advisor. Coordinating contributions to the ABLE account and the special needs trust is crucial to avoid exceeding limits that could affect eligibility for government benefits.

Combining an ABLE account with a special needs trust can provide powerful financial synergy for families caring for a loved one with disabilities. With the right planning, these tools help ensure both short-term financial needs and long-term security, allowing your family member to thrive and achieve their God-given potential.

On Today’s Program, Rob Answers Listener Questions:

My wife and I have the opportunity to purchase land and build a home using a VA loan. We currently own 8 acres with a mobile home, and we're trying to decide whether to get a double-wide mobile home or build a metal shop/barn instead. We have six kids, so finding the right long-term housing solution is essential. What is the best approach for us?

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