Financial Planning for Children With Disabilities

Hoffer family pictureWe’re honored to have a guest post from Stephanie Hoffer. Stephanie is a professor at The Ohio State University Moritz College of Law. She is an educator, a scholar, and an advocate, and arguably the preeminent authority on the ABLE Act. We’re excited that she’s agreed to introduce us to this important new law.

My son George is a bright shining star. He is almost five, and he loves to read out loud, play the harmonica, and paint. He also happens to have Down Syndrome. He is smart, funny, and loving, and I can’t imagine life without him. I am grateful every day for the privilege of being his mom. And like any other mom of any other child, I worry every day about his future.

Our life with George hasn’t always been easy. On the day that he was born, a social worker came to our hospital room and told me that we should do two things right away: apply for Medicaid and write George out of our will. I was stunned. I choked back the inevitable tears and asked why. “Because,” she replied, “they are really expensive.” Stung by the label “they,” and hurt by the thought of not being able to save for my precious baby’s future, I asked her to please leave. 

Later, other moms gave me the same advice. Many individuals with developmental or other disabilities rely on social services, like job assistance, transportation assistance, and coordination of medical care, to remain independent in the community. These social services commonly are paid for, at least in part, with federal Medicaid dollars. As a result, individuals who require disability-related services often must qualify for Medicaid in order to receive them. Disability-related services typically are not covered by private health insurance, and in many parts of the country, it is difficult to purchase and coordinate these services privately.

Medicaid eligibility rules are strict. In order to qualify, individuals with disabilities must have very little income, and almost no assets. In many states, an individual cannot have more than $1,310 in earned income each month and no more than $2,000 of total savings. And gifts of money given by family and friends are treated as income, which jeopardizes the loved one’s eligibility. Furthermore, the Affordable Care Act did nothing to help people in this situation.   While a person with a disability may qualify for medical coverage under the Medicaid expansion, access to disability-related services is not included. For those services, a person must qualify under the older, more Draconian rules.

The Medicaid eligibility rules create obvious problems for individuals with disabilities who have the potential to work with the aid of disability-related services. Earning income means losing services, and losing services means getting fired. A less obvious problem, though, arises for individuals with disabilities who are unable to work. Even though these people may have no earned income, family inheritance may disqualify them from Medicaid. This problem affects not only the wealthy, but anyone who stands to inherit more than $2,000 upon the death of a loved one.

Until recently, parents and individuals with significant disabilities had two basic estate planning options to preserve Medicaid eligibility: the responsible sibling or the special needs trust. Leaving money with a responsible sibling is risky. It is exposed the sibling’s creditors. It can be lost in a divorce. If the sibling dies, it might be dispersed.   But putting money in a special needs trust isn’t much better. Although the money is protected from creditors, the Medicaid law requires that the trustee have absolute discretion over the money and that the money not be used for expenses that could be covered by government programs. In other words, an individual who is a beneficiary of a special needs trust can never demand money from the trust, and if the trustee decides to distribute money, the individual beneficiary cannot use it for ordinary adult expenses like rent, groceries, or even some utilities.

It was against this bleak backdrop that Congress passed the ABLE Act last December. It was a watershed moment for many individuals with serious disabilities.  The new law permits states to create tax-preferred savings programs similar to § 529 college savings programs.  To date, over thirty states have passed enabling legislation and several more have introduced bills. Importantly, contributions to the account, investment earnings inside of the account, and qualified distributions from the account are not counted against Medicaid eligibility. With an ABLE account, parents can save for a child’s future and adults can have meaningful employment without jeopardizing their eligibility for Medicaid.

An individual is eligible to open an ABLE account if she has a severe disability with an onset date prior to age 26.  Parents can also open the account on an individual’s behalf, even if that person is an adult. Each eligible beneficiary can have only one account. Deposits to the account are not deductible for federal income tax purposes, but investment earnings inside of the account are tax free. In addition, some states may provide tax deductions for contributions, similar to college savings contributions. The tax benefit isn’t the important part though. Rather, ABLE accounts allow beneficiaries to spend their own funds on costs that previously would have disqualified them from Medicaid, like groceries and rent.

Money in an ABLE account can be used for “qualified disability expenses,” which are defined broadly as “any expenses related to the eligible individual’s blindness or disability.”  They include education, housing, transportation, personal support, health & wellness expenses, and a number of other things.  According to the IRS, even everyday expenses may qualify.  For instance, a “smart phone” could be disability-related because it is “an effective and safe communication or navigation aid for a child with autism.” Of course, if an ABLE beneficiary uses money from the account for a non-approved expense, that money counts as income for purposes of determining Medicaid eligibility. It’s also subject to a 10% federal tax penalty. If any money remains in the account at the end of the beneficiary’s life, it goes first to repay Medicaid, and whatever is left over can go back to the family.

The ABLE Act is a huge improvement over the law prior to its passage.  It allows individuals with disabilities to cover their own expenses—something that was much more difficult under the old rules—and it helps them save.  I advocated for the law’s passage in my home state of Ohio, and I was thrilled when it passed.  But the law isn’t perfect, and Congress and the states could do more to help individuals with disabilities who are among the most vulnerable in our communities.  For instance, the new law does very little for families who have no spare cash to save. In addition, contribution limits on the account prevent parents and individuals with disabilities from saving as much money as they will need for retirement, which is troubling, since many will not significantly contribute to Social Security during their working lives. And because the account can only take relatively small amounts of money at any given time, parents in my position still have to disinherit their children, which sends a terrible message about how society values relationships of dependence among family members versus dependence on the government.

So what are the contribution limits? An ABLE account can accept no more than the federal gift tax exempt amount per year ($14,000 in 2015), and over the account’s lifetime, it can receive no more than the state’s applicable limit for college savings accounts (typically in the range of $300,000 – $400,000). Not only do these limitations cause problems when it comes to planning for the death of a parent, but they bear no relation to the cost of living one’s life with a disability.

Placing contribution limits on the ABLE account, which protects access to services needed for independence and work, makes very little sense in a society that values those things.  A better solution would have been to remove the account’s contribution limits. Since any money left in the account goes to repay Medicaid, Congress should want to encourage high balances in ABLE accounts, not limit them. Or better yet, Congress could allow everyone with a significant disability to have access to Medicaid’s coordination and discount buying power for disability-related services either without regard to income and savings, or through a buy-in program (which exists, but only to a very limited extent, in some states). Allowing greater access to disability-related services would go further toward inclusion of individuals with disabilities in the community and workplace, and it may even save the government money as individuals with disabilities rely less on the government and more on their own earnings and their own families.  So while the ABLE Act was a tremendous step forward for individuals with disabilities, more work remains to be done.

In the meantime, state treasurers’ offices are hard at work designing the very welcome addition of ABLE programs to their portfolio of services. If you are interested in opening an account, check your state treasurer’s website. Some states’ programs are expected to be up and running as early as the first quarter of 2016. In Ohio, George and I are waiting with joy.


  1. Thank you for this. I’m very likely to be the conservator for my adult sister with Down Syndrome after my parents pass that they are both approaching 70, so these concerns are very real. I’ve had getting all the legal ducks in a row simmering on my back burner too long. I’ll need to read up on ABLE and work that in the plans. Thanks.

  2. It sounds like ABLE, when available, is best used alongside a Special Needs Trust. There’s no cash limit on the Special Needs Trust, and a will can instruct that that child’s share be placed in the Trust instead of given straight to the child. If you have a Special Needs Trust there’s absolutely no reason to leave a child out of your will.

    Unfortunately, the ABLE tax-preferred savings plan is not currently available in my state. Time to change that.

  3. Wow. I didn’t know about this. Thanks! As the mother of 24 year old twins with disabilities I will be immediately checking into this. There is never a day that goes by that we don’t worry about our twins and what happens after we are gone.

  4. One correction, probably not true everywhere

    If you have a developmental disability and are a client of the Regional Center system, you can get Medicaid (at least in California and until age 18!) without regard to income or assets.

    Click to access lntrmn_med_waiver_eng_final_aug2010.pdf

  5. What an informative, sensitive, and really useful/helpful post! This is amazing. Thanks!

  6. Stephanie Hoffer says:

    Tim, I agree that most people will use an ABLE account in conjunction with a special needs trust, although it is not clear whether states will amend their laws to protect the trustee of an SNT who makes transfers to an ABLE account, so the lump sum estate contribution problem with ABLE is real in either case. Of course, as you probably know, the special needs trust funds can only be used for things that are not otherwise covered by government programs, so a parent hoping to leave money to cover rent or regular support cannot rely on a special needs trust.

    Chrissyy, you are right that children can receive Medicaid services regardless of income, but that treatment is available only until they reach the age of majority. After that, the states vary in how they provide services to individuals with developmental disabilities. In California, the state provides quite a bit of funding so that individuals who may not qualify on financial grounds can still receive services. My home state of Ohio provides matching funds, so it’s possible here for some people with very severe disabilities to receive services even though they do not qualify under the federal guidelines. Other states, like Georgia, are really limited. For most people, unfortunately, there is a gap in coverage.

    The thing that is the most bothersome, I think, about the eligibility rules, the special needs trust regime, and our whole model of care, is the way in which families are marginalized.

  7. I had no idea. I hadn’t heard about this. I assume it will also apply to those with certain medical disabilities, since that is the case with our state Medicaid program similar to the one Cchrissyy mentioned. (Anecdotally, about a quarter or a third of states have non-income-dependent Medicaid loophole programs for medically or developmentally disabled children.)

    I just signed up for updates from my state so I will receive notifications if and when the bill passes the legislature, and I will be contacting my state legislators. I will also pass this information along to some advocacy groups since I hadn’t heard anything from them.

    Thanks so much, Stephanie and Sam. It took several tries to find a lawyer who could provide decent advice on special needs trusts/disability-related estate planning, so this advice is really valuable.

  8. This doesn’t directly affect me the way it does some of the other commenters, but I’m glad to see it here as a resource. As Mormons we should do a better job of putting our money and laws where our mouth is on supporting families with various challenges (financial, child care, medical, special education, parental leave, etc.). It’s good to know about these resources we do have.

  9. It’s kinda good to know people are trying to find a way through this morass. Maybe once we’re out of living paycheck to paycheck, we’ll be able to take advantage of such things.

  10. Stephanie Hoffer says:

    Amy and Cynthia, thanks so much for your comments! Amy, that’s correct. Both medical and developmental disabilities qualify, so long as the disability occurs before the age of 26. Anyone whose disability would qualify them to receive Social Security benefits in the form of supplemental security income (more commonly called welfare) or in the form of a disability payment will be able to open an ABLE account. The law requires that the person have a marked and severe functional limitation that will last more than a year or result in death, and that the disability have arisen before the person’s 26th birthday. In addition, the person cannot be engaged in substantial gainful activity.

    The phrase “substantial gainful activity” has a special meaning in this context. It takes into account whether a person needs special accommodations to remain employed. In many cases, where an employer provides more frequent breaks, accepts less productivity, provides more than the usual oversight, etc., having a job will not prevent a person from opening an ABLE account. In other words, if a person works regular hours for a regular wage without additional assistance, she will not qualify for an ABLE account, but someone who has accommodated work should be able to open an account.

  11. Kevin Barney says:

    Very helpful; thanks for sharing, Stephanie.

  12. Thank you for the additional information, Stephanie. It was such a relief for so many people a few years back when single ventricle heart conditions were added to the automatic eligibility list for Social Security.

    Many members of the single ventricle community are able to function without serious restrictions but a significant subset of the population will need accommodated work. Also, due to the realities of the condition there’s a good chance that many patients will start to develop heart or other organ failure in their 30s and 40s, if it doesn’t happen sooner, so I will be very interested to sit down during the upcoming week and read the federal and state legislation and think through the implications for the heart community.

    Thanks again.

  13. Stephanie, Thank you for this information, which, I’m certain, will be very helpful for many people.
    If this isn’t too much of derailment, I’m wondering if you could help me answer a question. Recently, my mentally disabled 57-year-old brother passed away. At his funeral, I was told that the social security disability payments he’d been receiving for the past decade or more was actually from my father’s social security account; that my father had directed at a certain point in time that any social security due him in the future should be allocated to take care of some of my brother’s needs. If I understood, and here explained, this correctly, how does something like this work?
    Thanks again.

  14. Thank you, Stephanie!

    My adult autistic daughter is our ward, and we are working through these matters at this very time. I look forward to talking with our lawyers about how an ABLE account and a Special Needs Trust might be combined to help meet my daughter’s needs in the future.

  15. Stephanie Hoffer says:

    Great question, Gary! Social security ( the retirement piece) offers survivor benefits to spouses, minor children, and adult children with disabilities. I am not familiar with all if the details, but you can read more here:

  16. Thanks, Stephanie. That was very helpful and answered a lot of questions for me.

  17. lastlemming says:

    Sorry I’m late to the party, but the linked blog post was published just today and contains an important caveat concerning SSI eligibility that is missing from Stephanie’s description. (It’s possible that it affects only Wisconsin–I can’t tell.)

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