Financial Planning for Individuals with Disabilities

Financial planning is a valuable process for anyone, and becomes even more critical for those supporting loved ones with disabilities. This kind of planning requires accounting for the resources needed to support the loved one in childhood and potentially into adulthood, and becomes even more complicated when considering the rules of the government benefits and different savings vehicles that are available. What follows is a breakdown of some of the planning considerations for those supporting loved ones with disabilities including:

• How Government Benefits Play a Role,
• Mechanisms for Saving,
• Potential Funding Solutions, and
• A Summary of Quick Tips

How Government Benefits Play a Role

1.) Supplemental Security Income (SSI)

Supplemental Security Income is available to individuals with little to no income or resources and who are either disabled or over the age of 65. This is a needs-based benefit. For a disability to qualify a minor (or students under the age of 22) for SSI, daily activity must be severely limited, and it must be expected to last for at least 12 continuous months. Adults can qualify if their disability is expected to last at least 12 continuous months and the disability results in the inability to do sustaining gainful activity.

Once an individual has been identified as eligible for SSI, the final consideration is the assets in their name. Income and assets are limitations for receiving benefits. In terms of assets, an individual can have in total $2,000 in cash and investments, the home they live in, a vehicle, and an ABLE account with a balance of up to $100,000.

In addition to the asset limitation, disabled individuals receiving SSI must earn less than $1,550 per month (in 2024) to be eligible for benefits.

Once eligibility is confirmed, SSI provides Medicaid benefits which include health insurance, but also includes access to resources like educational programs.

2.) Social Security Disability Income (SSDI)

Social Security Disability Income is available for individuals who have a qualifying disability and also have working a job that pays into the Social Security system. This is an earnings based benefit. A subset of SSDI is called Disabled Adult Child (DAC) which allows for an individual who has become disabled prior to the age of 22 to receive benefits based off a parent’s earning record if that parent is deceased or is receiving Social Security retirement benefits. Here’s a scenario to provide an example:

Scenario: Luke is born with a disability and will require significant support for the entirety of his life. Between birth and his 18th birthday, he doesn’t receive any government benefits as his parents earn above the threshold. At age 18, he continues to live at home and his parents apply for SSI benefits for him. He maintains no more than $2,000 in his checking account and he has no other assets. He works part-time and earns $1,000 a month. He receives the maximum benefit (in 2024) of $943/month.

Luke remains on SSI until his mom decides to take Social Security at age 62 so that he can begin receiving the higher SSDI benefit from her earning record.

As you’ve learned above, in order to receive the support that many individuals need to live successful and fulfilling lives, they are severely limited in the amount of assets that can be in their name. With these limitations, what other mechanisms are available to support disabled individuals while also protecting their eligibility for support?

Mechanisms For Savings

1.) ABLE Accounts

ABLE accounts, which are named after the ‘Achieving a Better Life Experience Act’, are tax-advantaged savings accounts that are accessible only to individuals with disabilities and their families. These accounts, which were first introduced in 2014, were created as a result of the strict income and asset limitations that restrict individuals from qualifying for government benefits.

As the Act was originally written, to be eligible for an ABLE, the onset of the disability must have occurred prior to age 26. The eligibility age will increase to 46 on January 1, 2026 due to the Omnibus Spending Bill.

These accounts can be incredibly powerful resources as all qualified expenses, defined as any expense related to the beneficiary as a result of living a life with a disability, are tax-free distributions. This could include housing, food, transportation, educational and social programs, medical equipment, and any other expense that will improve quality of life.

The contribution limit for 2024 is $18,000 per beneficiary. Additionally, beneficiaries who are working and aren’t contributing to an employer retirement plan can contribute up to $14,850 of earned income if they are living in the continental U.S.

Balances in the accounts are limited on a per State basis. For California, an ABLE account balance cannot exceed $529,000 and for Virginia the account balance cannot exceed $550,000. You can learn more about your state plans here. While balances are limited to as high as $550,000 as a savings mechanism, only the first $100,000 in the account are “ignored” by some Federal Assistance Programs, like SSI. This means, having a balance over $100,000 in an ABLE could negatively impact the beneficiary if they are receiving certain government benefits.

2.) Special Needs Trusts

Special Needs Trusts are vehicles that hold money and other assets that are for the benefit of a disabled person. Inherently, the trustee of a Special Needs Trust is not the beneficiary of the funds. By removing the “control” of the funds, assets within the account aren’t considered when determining income and asset eligibility for government benefits.

These trusts can pay for the health, maintenance, education, and support of the beneficiary. Like ABLE Accounts, expenses related to the well-being of the beneficiaries are almost all eligible expenses and won’t affect government benefit eligibility. Unlike ABLE accounts, expenses considered “In-Kind Support and Maintenance” can still be covered by a special needs trust, but they may reduce the monthly benefits received up to an annual limit. This kind of support and maintenance relates to shelter and food. It is typically advised to utilize other resources, such as the ABLE account to cover expenses such as rent, utilities, and food to avoid any reductions.

Let’s review the two different types of Special Needs Trusts.

1^st Party Special Needs Trusts

As it sounds, 1^st Party Special Needs Trusts are instruments that are funded by the disabled person’s own money or funds in which that have been gifted or inherited outright into the disabled person’s name. These accounts, in almost every case, include a payback provision. This provision requires that at the disabled persons passing, any state in which the disabled person received Medicaid must be notified as they are entitled to reimbursement of those benefits before the remaining balance of the trust can be distributed to the named beneficiaries.

3^rd Party Special Needs Trusts

Third Party Special Needs trusts are funded by assets that were never held outright by the beneficiary. These accounts are funded by outside sources, such as parents and other family members. They can also be funded by inheritances that specifically name the third party trust and not the beneficiary outright. Unlike 1^st Party Trusts, there is no required Medicaid payout at the passing of disabled person. Instead, the funds can be distributed directly to the named beneficiaries.

Scenario: Luke continues to work and earn $1,000/month. He has an ABLE Account that he deposits money into whenever his bank account gets close to $2,000 a month. His parents also gift him $18,000/year.

In addition, his parents are beginning to plan for his financial needs for when they are deceased. They open a Third Party Special Needs Trust and are making contributions to the account. Additionally, they list the Third Party Special Needs Trust as the beneficiary of their personal trust and their retirement accounts. When they pass, the assets are deposited into the account and Luke continues to receive his government benefits as well as support for the programs. His additional lifestyle expenses come from his trust and ABLE account.

Luke’s Aunt decided to name him outright as the beneficiary of her estate. When she passes, he inherits $10,000 outright. He immediately loses his SSDI benefits and is no longer eligible to attend the day programs that he has previously attended since turning 18 many years ago. Luke’s legal guardian must begin the process of opening a 1^st Party Special Needs Trust for him, which takes time (during which time he is no longer receiving health insurance from Medicaid or any other resources). Months later, the account is opened and the assets are moved into the trust. Luke’s guardian must now go through the process again of applying for benefits and providing eligibility to receive support. When Luke dies years later, the balance of the account had grown to $25,000, but all of the assets were paid to the State as to reimburse them for the benefits he had been receiving rather than going to his nieces and nephews.

Potential Funding Solutions

Like most aspects of financial planning, there are often multiple alternative paths towards reaching your goals.

1.) Self-Funding: For families with significant wealth that is projected to more than cover the need of the family member you are planning for, self-funding may be the answer for your family!

2.) Survivorship Life Insurance (Second-to-die policy): This type of life insurance is purchased typically by a married couple and the death benefit doesn’t pay out until the passing of both policy owners. These policies are typically cheaper than traditional whole life policies and they guarantee that the death benefit will be available to child or loved one you are planning for.

The best way to find out which path is best for your family, and to determine the number of resources your loved one will need for their lifetime, is to connect with a financial planner who can assess your plan as whole.

A Summary of Quick Tips

1.) If receiving government benefits is an important aspect of the financial plan for your loved one, make sure that you are utilizing the different account types and are maintaining income and assets below the limits.

2.) Connect with extended family members who may list your loved one as a beneficiary in their estate plan. If so, make sure their estate plans indicate the inheritance to be going into the Special Needs Trust (if one is needed for your loved one) rather than outright in their name.

3.) Work with your financial planner and estate planning attorney to establish the best plan for your family!

The best way to find out which path is best for your family, and to determine the number of resources your loved one will need for their lifetime, is to connect with a financial planner who can assess your plan as whole.