When you’re leaving money to an heir with special needs in Maryland, you have unique considerations for the estate planning process. Knowing the differences among your options can help you adequately support a disabled heir after your passing.
Special needs trusts and ABLE accounts
Both types of financial instruments are essential in special needs planning as each can provide a means to save money for future living expenses while retaining eligibility for federally funded programs like Supplemental Security Income and Medicaid. These two saving methods have significant differences, rules and annual limits that you should understand before selecting one.
Special needs trusts are sometimes expensive to set up, but they don’t have annual limits. They are also irrevocable, meaning you can’t change them once established. However, creditors cannot seize any assets in them. Proceeds may only be used for a limited range of expenses like medical expenses, payments for caretakers and transportation costs.
ABLE accounts, created by the Achieving a Better Life Experience Act of 2014, are available to individuals whose disabilities appear before age 26. These accounts have tax-free growth, but they have an annual contribution limit of $16,000. ABLE accounts can be used to pay a broader range of expenses.
Which one is better for my planning needs?
When planning for a loved one with special needs, you want to make the most of all of your available resources. Minimizing the taxes you pay now is an important consideration, and you could explore all legal avenues during your lifetime to provide a quality future income stream.
While special needs trusts are the primary means for funding disabled heirs, some families may benefit from the addition of an ABLE account. Carefully weigh your options before choosing or discounting one over the other.