Special Needs Trusts are costly to administer. Consequently, there are some situations where it is prudent to explore more cost-effective options, usually due to smaller asset amounts available to fund the trust. Alternative options are limited and subject to review by public benefit agencies.
MSNT encourages individuals, families, guardians, and service organizations to explore other options to a Special Needs Trust. Special Needs Trusts are a useful tool and a long-term plan for savings; however, they are not always a good fit for everyone. Alternatives to establishing a trust include spending down the funds, prepayment of living expenses, and ABLE Accounts. Read below for more information on each.
Spend down the funds for exempt assets
Funds received by an individual are counted as income in the month received and an asset the following month if not spent. One way to spend funds is to purchase exempt assets. Exempt assets include: a primary residence, vehicle and irrevocable prepaid burial polices. Public benefit authorities have upper limits on some exempt assets, and it is best to check applicable polices regarding the purchase of an exempt asset.
Prepayment of living expenses
Prepayment of living expenses may be an option for some to spend excess funds. The following is a list of living expenses:
- Rent, utilities, insurance premiums, or a home warranty program
- Dental treatment services or dental insurance premiums
- Educational expenses
- Hygiene and care supplies that are necessary but not covered by Medicaid or Medicare such as but not limited to, diapers, orthotics, wheelchair batteries or repairs, compression hosiery, nutritional supplements or other similar supplies
- Documented loans or consumer debt accumulated while awaiting eligibility or a settlement, including promised payment to family caregivers and documented with written agreements
- Recreational or cultural expenses such as a concert series or membership at a gym or wellness center
An account made possible under the Stephens Beck Jr. Achieving a Better Life Experience Act of 2014 may be a viable alternative to a special needs trust for some individuals. Similar to College 529 savings plans, ABLE accounts are available as a financial planning tool for persons with disabilities and their families. An ABLE account can provide autonomy and independence.
An ABLE account allows savings to be set aside for the needs of a person with disability without impacting their eligibility for public benefits. The annual contribution cap for ABLE accounts is currently set at $15,000. Requirements for an ABLE account include:
- Beneficiary must have become disabled prior to age 26
- Only one account per person (more than one donor may contribute)
- Medicaid payback, and
- Utilization only for qualified disability expenses
If the individual is already the beneficiary of a 529 account or is a member of the 529-donor’s family, the 2017 federal tax bill provides that up to $15,000 annually may be rolled over from the 529 account into the ABLE account without tax or penalty. Another change in the tax legislation is that working individuals who are not covered by an employer’s retirement program may contribute to their own ABLE account, over and above the $15,000 limit. The individual’s contributions are capped at the Federal Poverty Level, which as of 2019 was $12,490.
State requirements vary. In Missouri, state income tax deductions for contributions to Missouri ABLE accounts may be taken up to $8,000 per participant and $16,000 for those married and filing jointly. Missouri ABLE accounts may accumulate no more than $468,000. For more information on the MO ABLE accounts, please visit www.moable.com
An ABLE account may be a good option when:
- The beneficiary is self-sufficient and independent enough to manage the account themselves.
- Smaller amounts are generally involved.
- Third-party donors are not concerned that remainder funds will be paid back to Medicaid.
- An individual after age 65 is subject to transfer penalties for contributions to a trust and seeks another means to conserve assets.