For families with a disabled loved one, they typically prepared a special needs trust to permit their disabled child to inherit money or assets, yet not disqualify them from government benefits. My blog pertains to Ohio, and Ohio’s best trust (my opinion) for this purpose is called a “wholly discretionary trust (WDT).” (Technically, a special needs trust is a less-favorable [my opinion] statutory trust, so I refer to WDTs instead.) Wholly discretionary trusts are very specifically worded, expensive to have prepared, yet when drafted correctly they hold assets for a disabled person while not jeopardizing their receipt of benefits such as Medicaid. Medicaid doesn’t pay for many things important to our daily lives, necessitating the need for disabled people to have the means to pay for what Medicaid does not cover.
For someone with a disability who was working, for example, that person had to be very careful to not accumulate more than $2,000, which is the maximum a disabled person can have without becoming ineligible for government benefits. So, Joe has Down syndrome and receives Medicaid (traditionally described as health insurance for the poor and disabled) that provides him with crucial medical insurance. Joe must have less than $2,000 in assets in order to receive Medicaid. But, since Joe is working, he has to be careful to not let more than $2,000 accumulate in his bank account. Historically, Joe had to choose between working and making some money to pay some of his own way, or not work in order to keep his health insurance.
With ABLE accounts (called “STABLE” accounts in Ohio), Joe can contribute up to $15,000 (2019 figure) annually in his STABLE account, and possibly an additional $12,490 annually of income if Joe is working. Joe can receive a STABLE card so he can make qualified purchases as someone would do with a debit or prepaid card. If STABLE accounts can permit Joe to accumulate money without losing necessary health insurance and other benefits, why would Joe need a wholly discretionary trust?
- In my example, Joe is a competent, working, disabled adult. He likely wants the autonomy of having his own money and making decisions about how to spend it, such as buying his own lunch at work, or ticket for a movie, groceries at the store, or maybe his own gas if he drives, which he would do with his STABLE account card. Pulling money for these expenses out of a trust would require Joe to ask his trustee, who would then have to pay expenses for him. Joe would likely feel handcuffed by the trust’s stringent distribution rules.
- When the beneficiary (Joe) dies, a STABLE account must be used first to pay back Medicaid or the State. With a WDT, assets remaining in the trust at the beneficiary’s death go to whomever the trust terms state. This could be Joe’s siblings or other family members, or perhaps a charity.
- A STABLE account can only hold cash. To the contrary, Joe’s WDT would be able to hold real property, non-cash assets, etc. If Joe inherited real property from his grandparents, or a valuable collection from his uncle, his WDT could own it for Joe’s benefit, unlike his STABLE account.
- In Ohio, the lifetime cap on a STABLE account is $468,000 (2019 figure). If Joe receives SSI, then anything above $100,000 is considered an available resource (anything above $100,000 would need to be spent down to be eligible for SSI). There are no resource limits with the amounts a WDT can have. Consequently, if Joe inherited his father’s accounts totaling $550,000, his STABLE account could not hold all of Joe’s inheritance.
The approach to planning with STABLE accounts and wholly discretionary trusts involve enabling them to work together, not whether there should exist one or the other. A disabled individual should have a WDT in place to hold inheritances or non-cash assets, as well as a STABLE account to enable the individual to accumulate cash, enabling him or her to operate with accessible funds for daily expenses.