When someone is living with a disability that makes them unable to sustain gainful employment, Social Security Income (SSI), Medicaid (known as MediCal in California), and other government benefits can often help to put a roof over their head and food on their table. But in order to qualify for these benefits, the individual must make under a certain amount of money and must not have enough money to independently support them. Money sitting in their bank account can be counted against their ability to qualify.
Due to this situation, it essentially works to prevent people with special needs from building savings whether gained through inheritance, gifts or earned income. This begs the question of how can they save money without jeopardizing these benefits?
Special Needs Trust
One option is to create a special needs trust, which can help to save money to benefit the individual with special needs. However, although this doesn’t impact their ability to receive government aid, someone other than the individual with special needs must control the trust (the trustee). Again, this provides the individual with special needs with minimal control over their finances and subsequent independence.
CalABLE Accounts
Luckily, they can utilize ABLE accounts. ABLE accounts, which stem from the federal Achieving a Better Life Experience (ABLE) Act, are bank accounts that allow those with special needs to save their money without impacting their disability benefits. Although they are issued at the federal level they are established and managed on the state level. Each state’s ABLE accounts have different rules and regulations.
Although not all states have implemented ABLE accounts, luckily California did so in December 2018. California’s ABLE program is called CalABLE and is available to both residents and non-residents. Additionally, California residents are able to open ABLE accounts in other states that permit them to do so.
Federal Regulations for ABLE Accounts
The federal ABLE Act requires that states adhere to the following regulations:
- The individual must have a disabling condition that began before age 26.
- Each individual can only have one ABLE account.
- Anyone can add money to the ABLE account.
- The limit for 2020 contributions is $15,000.
- The balance of an ABLE account for individuals who qualify for SSI cannot exceed $100,000.
- All ABLE account funds must be used for expenses related to their disability, also known as Qualified Disability Expenses (QDE).
- Those who use these funds on something other than a QDE may be obligated to pay income taxes as well as a 10% additional federal tax and a 2.5% California state tax on any earnings made on them.
- Income earned is tax-free.
- Any funds remaining in an ABLE account after one’s death will be used to reimburse Medicaid/MediCal for services they received from that program.
In addition to the $15,000 annual contribution, those CalABLE accountholders who are employed may contribute their annual gross salary or $12,140 more into their CalABLE account, whichever is less. In other words, annual contributions to a CalABLE account may total $27,140.
Heritage Legal, PC Helps Those in California with Special Needs Planning
It can be difficult to know the best way in which you can financially plan for those with special needs. Luckily, a knowledgeable and experienced California Estate Planning Attorney can help.
At Heritage Legal, PC, we understand the importance of protecting those whom you care about most and helping to ease the burden on your family. We can help you to establish a CalABLE account for those with special needs. To learn more or to schedule a free consultation, contact us today!