Planning Tool for NY Elder Law Practitioners: Using Guardianship or SNT Assets to Fund an ABLE Account

By Lissett Ferreira

ABLE accounts and Supplemental Needs Trusts (SNTs) are planning tools to allow disabled individuals to save funds for use toward their needs while remaining eligible for critical government benefits such as Supplemental Security Income (SSI) and Medicaid. ABLE accounts and SNTs can be used together as part of a comprehensive plan to maximize savings for an individual who became disabled before age 26 and is age 65 or under.

Individuals who became disabled before age 26 are allowed to maintain a 529A ABLE account — like a 529C educational savings account — which can be funded up to $17,000 per year for each beneficiary (current annual federal limit applicable to all states; does not include ABLE to Work contributions not addressed here). There are no penalties or income taxes for the withdrawal of funds in an ABLE account for qualified expenses, which, in the case of ABLE accounts, include food, housing, education, transportation, medical, and funeral expenses. In NY, each ABLE account has a lifetime contribution limit of $520,000.

The ABLE statute sets forth a list of descending priorities of individuals eligible to open and maintain an account on behalf of an incompetent disabled person, which includes a guardian, spouse, parent, sibling, or grandparents. ABLE account balances under $100,000 are excluded from the SSI resource limit, and there is no limit on the exclusion for Medicaid eligibility purposes. Funds contributed to and earned in an ABLE account, which are applied to qualified expenses, are also disregarded in determining eligibility for Medicaid and SSI. (However, ABLE is not a tool to shield a disabled individual’s income). These characteristics render ABLE accounts a valuable planning tool for disabled individuals who receive means-based government benefits. However, the annual contribution limit on ABLE accounts renders them insufficient as the sole planning tool for individuals with assets over that limit.

A Supplemental Needs Trust is an asset protection strategy available to individuals 65 and under with resources over the eligibility levels for SSI (currently $2,000) and Medicaid (currently $30,182). The assets in the trust are used to supplement the government-funded benefits and, like the assets in the ABLE account, can be used for a wide variety of purposes to improve the beneficiary’s quality of life. SNTs are generally used where a disabled individual who receives or is anticipated to receive government benefits obtains an inheritance, legacy, lawsuit settlement, or other funds that bring their resources to an amount exceeding the eligibility level for SSI and Medicaid. However, any funds in the SNT that are used for housing and food costs will effectively reduce any SSI benefits the beneficiary receives.

Any person — defined under the Internal Revenue Code to include a guardian and a trust — can contribute to an ABLE account. Thus, not only a disabled beneficiary but their family and friends can fund an ABLE account to benefit the disabled person. Critically, a guardian and the trustee of a Supplemental Needs Trust for the benefit of a disabled individual eligible to use an ABLE account can also fund an ABLE account for that same beneficiary in an amount up to the annual contribution limit. See Matter of ABD (JLA), __ Misc.3d. __; 2019 NY Slip Op. 29182 (Surr. Ct., Nassau Cty., 2019) (Surr. Reilly) (permitting 17A property guardian to fund ABLE account).

This strategy has two primary benefits, combining the significant benefits of an SNT with the unique benefits offered by an ABLE account. First, the use of funds of a disabled individual –including those held in a guardianship or SNT–for food and housing expenses will result in a one-third reduction of their SSI benefit amount. However, disbursements from an ABLE account used for food and/or housing will not impact the person’s SSI benefits, making this a particularly useful planning tool for SSI recipients who need to use their funds for food and/or housing costs.

Second, because an ABLE account for an incompetent individual can be opened and maintained by their family unless a court directs otherwise, funds in an ABLE account remain outside the guardianship and trust. For lower-asset guardianships and SNTs, the regular, periodic transfer of SNT funds to an ABLE account may ultimately obviate the need for the guardianship or SNT and their higher ongoing administrative costs and burden, which can include commissions, professional fees, accountings, and bond premiums.

For eligible beneficiaries, practitioners should include in their SNTs and guardianship petitions the power for the fiduciary to fund ABLE accounts up to the annual exclusion amount, as well as advise their clients on the availability and usefulness of this tool. Guardians and SNT trustees should be educated about and encouraged to avail themselves of this option for greater flexibility and maximization of government benefits, seeking court approval as required where under the supervision of a court.

Lissett C. Ferreira is a partner at Meenan & Associates, LLC, a Manhattan boutique civil litigation law firm. She is a former law clerk to an Article 81 guardianship judge, and the primary focus of her practice is elder and disability law. She serves the NYWBA chapter as Treasurer, co-chair of the Special Needs & Disabilities Section, and delegate to the WBANSY Board. She lives in Brooklyn with her husband, Josh, and two teens, Nicholas and Ethan.

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