April 1, 2020

Special Needs Trustees – Should They Always Encourage Beneficiaries to open ABLE Accounts

First, let us examine who qualifies for an ABLE account, as they can be wonderful tools for the trustee. If the beneficiary of a Special Needs Trust becomes disabled prior to the age of 26, the trustee can fund an ABLE account, regardless of the  kind of special needs trust. In my previous blog, I explained how payment of shelter and food reduces the income from in-kind support and maintenance for an SSI recipient. This is good news, since  it has the potential of increasing the public benefit funds up to approximately $3,000 annually.

So why would a trustee possibly NOT take advantage of this new development? It is important for a trustee to review if the beneficiary or guardian is able to manage his or her funds in an ABLE account. Here is a list of items to consider:

1. Does the beneficiary have any experience managing money previously? If so, what were the results?
2. Is someone involved in day-to-day management who can work with the beneficiary to manage funds, if needed?
3. Is the beneficiary capable of paying for the shelter costs on time? If he or she withdraws that amount from the ABLE account, will they ensure the money does not stay in his checking account past month-end, thereby triggering excess resources in the eyes of the Social Security Administration?
4. Will the beneficiary  spend the funds on something else and then be short when it is time to pay for shelter? If this is a concern, can automatic payments be set up?

Here are five tips to mitigate the risks of improper spending:

1. Distribution Amount -  If a trustee is uncomfortable with a larger amount being  paid for shelter, we recommend beginning with a smaller item, such as a utility bill. This way, the trustee can gradually increase the amount and responsibility of the beneficiary as he or she becomes successful.
2. Frequency of Distributions -  If the beneficiary is completely competent, you may consider quarterly or annual distributions. Currently, the maximum annual distribution is $15,000 or $1250 monthly and if you anticipate issues, the frequency of distributions can be increased.
3. Timing of Distribution - Consider making the trust distribution to the ABLE account right before a large payment such as shelter is due.
4. Education: Conduct a meeting, with the beneficiary and any family or team members, to review the rules and consequences of using an ABLE account, especially with the limitations on trust distributions annually. You can also emphasize the benefits of self-determination and if the beneficiary is an SSI recipient, the hard increase in dollars.
5. Memorandum of Understanding -  If your beneficiary has capacity, consider both the trustee and the beneficiary signing a letter of understanding to detail the benefits and possible pitfalls of having special needs trust distributions deposited into an ABLE account. This will become valuable should you need to  refer to this letter in future conversations.

Author: Lee Ann Hitchman, CLPF/MBA and Licensed Professional Fiduciary