Last Updated on February 9, 2022 by Tresi Weeks

One area that particularly vexes trustees of special needs trusts is how to get beneficiaries what they need without running afoul of the strict rules for public benefits like Supplemental Security Income (SSI). Monitoring how money is being spent, collecting receipts, and disbursing funds safely are time-consuming processes for trustees. And while some beneficiaries are able to cope or assist, others are completely dependent on others when it comes to record-keeping and compliance.

The good news is that ABLE accounts (tax-advantaged savings accounts that can fund disability expenses) are turning out to be a game-changer when it comes to paying for the beneficiary’s living expenses. ABLE accounts allow many people with disabilities or their families to establish tax-free savings accounts that won’t affect their ability to qualify for, or remain on, government assistance, as long as the account balance does not exceed $100,000. ABLE accounts can only be funded up to $15,000 a year from all sources, although a person with a disability can add his or her wages of up to $12,760 (in 2020) to an account.

But ABLE accounts are proving to be much more than simply a savings vehicle. In fact, new research shows that people with special needs are using money in their ABLE accounts to pay for everyday expenses, and there are significant advantages to this approach. For example, money from an ABLE account can be used to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third party, including a special needs trust, made the same expenditure. When it comes to its ISM rules, the Social Security Administration views money in an ABLE account as the SSI beneficiary’s own money, so there is no penalty when the SSI recipient uses funds from an ABLE account to pay for her housing expenses.

More and more special needs beneficiaries and guardians are availing themselves of these built-in advantages of ABLE accounts. Research conducted by True Link Financial of transactions in Ohio’s ABLE program from inception to early 2020 indicates that ABLE accounts are generally not being used as the savings vehicles they were intended to be, but rather they are serving as checking accounts. True Link found that the average ABLE account balance was only $5,000, well below the $100,000 limit.

Restaurant meals were the most popular item on which ABLE funds are being spent, closely followed by groceries, shopping, gas, discount store items and phone/cable. True Link found that the top five recipients of ABLE distributions were, in order, Walmart, Amazon, McDonald’s, Walgreens, and Uber.

For SSI recipients, being able to pay for food and other discretionary items with no ISM reduction represents a significant windfall. At the same time, spending money without having to obtain a trustee’s permission translates into welcome financial independence for a person with a disability.

However, unfettered access to funds may not be for every beneficiary. Once funds are out of the trustee’s discretion, they can be targeted by fraudsters or others who do not have the beneficiary’s best interests in mind. If a beneficiary who has an ABLE account but lacks the ability to manage his own finances, the only alternative once the parents are no longer around to help may be a guardianship or conservatorship, which is expensive and time-consuming.

Despite just celebrating their sixth birthday, ABLE accounts are still woefully underutilized.  To find out whether an account is right for you or a family member with disabilities – or whether an existing account could be better used — contact your special needs planner.

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