Q&A: The American Rescue Plan and Planning for the Special Needs Community

The latest round of stimulus checks have hit the bank accounts of millions of eligible Americans. This set of economic impact payments was authorized by the American Rescue Plan Act of 2021. While stimulus checks are not new, the 2021 act is different from previous pandemic relief bills in that it includes new provisions that support individuals with disabilities. Thanks to these provisions, many in the special needs community, such as disabled dependents, who may not have qualified for previous payments, are now eligible for stimulus payments.

We spoke with Jessica Tuman, vice president of the Voya Cares Center of Excellence at Voya Financial, about what these payments mean for people with disabilities. She talks about how the payments may impact other financial support, such as Social Security and Medicaid benefits, and how to prevent the stimulus checks from impacting access to other aid. Here are edited excerpts from that interview.

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How has the latest round of stimulus payments impacted adults who are disabled and receive Supplemental Security Income (SSI) and Medicaid? How can these adults maintain eligibility for these benefits?

For the first time since the pandemic began, adults with disabilities who are considered dependents for tax purposes qualified for $1,400 checks. They qualified based on their parents’ income, and the check was sent to the parents, so some dependent adults did not get the money because their parents’ income was too high.

These payments are not considered income and will not impact eligibility for programs like SSI or Medicaid. They are a tax refund. Payments don’t count toward means-tested resource limits for SSI and Medicaid, which is $2,000 in most states, up to 12 months for eligible adults. However, after 12 months they will count toward those resource limits. If after 12 months, the stimulus payments are boosting income above eligibility limits, adults with disabilities should consider opening an ABLE account or a trust, where assets aren’t considered income for purposes of government assistance eligibility.

And the plan significantly expands the child tax credit from $2,000 to $3,000, and up to $3,600 for children under the age of 6. It also includes a slightly higher age threshold that will allow 17-year-old children to qualify in 2021 and a new system that will pay a portion of the child tax credit in advance over the last six months of the year.

Notably, the new child tax credit provision under the American Rescue Plan is for 2021 only — or in limited cases, until 2022 as well — making these checks only temporary relief.

[Read: Advisors Recommend Caution Ahead of Potential Capital Gains Tax Changes]

What specialized savings accounts are available to people with disabilities, and their caregivers, to safely deposit and save stimulus dollars? What are the pros and cons to each?

ABLE accounts are tax-advantaged savings options and don’t affect eligibility for SSI, Medicaid and other means-tested benefits. The maximum contribution in a tax year is $15,000, as of 2021. In the case of ABLE account owners who work and earn income but do not participate in their employer’s retirement plan, up to $12,760 in addition to the $15,000 annual maximum contribution can be contributed, for a maximum annual contribution of $27,760.

Government benefits eligibility is maintained with ABLE accounts. But the beneficiary is also the account owner. The accounts are inexpensive to establish, ideal for day-to-day expenses, provide flexible control of funds for the beneficiary and family, and earnings aren’t taxed when used for qualified expenses. That said, the contribution limits and fact that ABLE accounts may be subject to Medicaid payback in some states can be downsides.

As an alternative option, a special needs trust (SNT) may be an effective way for caregivers to ensure that the person with a disability receives financial, physical and mental health support, without depleting the caregiver’s retirement or savings accounts. A SNT can also protect the eligibility of a person with a disability to receive government benefits. There is no limit to the amount and types of assets that can be included.

Conversely, trusts are expensive to establish, not ideal for day-to-day expenses, not owned by the individual, accessible only by trustees, taxed at a higher rate than individual income taxes and may be subject to Medicaid payback.

Can a child’s 529 account be rolled into an ABLE account?

The ABLE Financial Planning Act allows parents to roll over money from a 529 college savings account into an ABLE account, without being penalized. However, there still is a $15,000 annual contribution limitation.

[READ: What Advisors Should Know About SLATs.]

Do you need an ABLE account if you have a special needs trust?

ABLE accounts and SNTs do not preclude each other. In fact, they’re complementary, and the combination often works well in a comprehensive special needs financial plan.

ABLE accounts are easier to access for short-term expenses like food and housing. All earnings are tax-free, individuals can manage their own money and state tax deductions can apply.

SNTs can hold unlimited assets, and a third-party trust may be used for estate planning and family wealth transfer. Distributions from a trust can fund an ABLE account, providing unique opportunities to use both vehicles together.

How can special needs trusts be used in conjunction with broader estate planning purposes?

A SNT can assist in estate planning by ensuring that the portion of the parents’ estates that passes to their child with special needs is not considered an available asset, or an asset that can be accessed directly by the beneficiary rather than through a trustee, for example, which could result in the child losing eligibility for government benefits.

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Q&A: The American Rescue Plan and Planning for the Special Needs Community originally appeared on usnews.com

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