Passage of ABLE Act may help some with special needs

A new federal law allows special needs individuals to accrue more assets without Medicaid penalties.

People with special needs have the same wants, needs and desires as others. Just because a person has a medical condition does not mean he or she doesn’t enjoy recreational activities and hobbies – which require some amount of disposable income.

Unfortunately, it can be very difficult for special needs individuals to gather assets. Historically, in order to qualify for Medicaid, an individual must have had less than $2,000 in nonexempt assets. Because many disabilities require extensive care, qualifying for Medicaid can be essential. That has meant that special needs individuals need to rely on family members and loved ones to help with costs associated with quality of life expenses, in order for Medicaid to cover basic needs.

ABLE Act a step in the right direction

Congress recently addressed this issue, passing a law in December that may give those with disabilities the ability to save money without losing access to government help for basic medical and living expenses.

In December, Congress passed the Achieving a Better Life Experience Act (ABLE) with overwhelming support. The Act allows people with disabilities to save up to $14,000 a year and $100,000 in total without losing eligibility for Medicaid. There are important caveats, however. For example, any money remaining in an ABLE account when the account holder dies loses the money – Medicaid captures the remaining amount. In addition, only individuals whose disability manifested before age 26 may establish ABLE accounts. Importantly, the ABLE Act also does nothing with the severe income limits disabled individuals can earn each month and still qualify for Medicaid eligibility.

Special needs trusts and estate planning still important

The full ramifications of the ABLE Act remain to be seen. In the meanwhile, individuals with special needs have established legal options in order to achieve some measure of financial independence. A special needs trust allows a trustee to spend money on recreational or educational expenses without incurring Medicaid penalties. In addition, some individuals with special needs may need financial help over and above qualifying for Medicaid. A special needs trust allows a trustee to manage money efficiently and effectively for the benefit of the recipient.

It is good to see Congress addressing the issue of Medicaid eligibility for individuals with special needs. However, because the law is so new, special needs individuals and their loved ones must be careful when establishing savings accounts and other assets in the name of the Medicaid beneficiary to avoid incurring penalties not addressed by ABLE. In addition, Medicaid is a state-run program, and states have their own laws that address Medicaid eligibility.

Parents of special needs children must also still be careful when drafting an estate plan to ensure that their assets go towards the benefit of the special needs child.

Attorney J. Kevin Tharpe can help families with a special needs individual understand their rights under the new law and draft an estate plan or special needs trust that accounts for all recent developments in the law.