Special Needs Trusts vs. ABLE Accounts in Michigan

Providing for the long-term well-being of a loved one with a disability in Michigan requires careful financial planning. It’s a journey filled with love and dedication, but also with complex legal and financial considerations, like special needs trusts (SNTs) and ABLE accounts.

At Law Office of Julie A. Paquette, we understand these challenges deeply. Our firm has assisted numerous Michigan families in creating comprehensive estate plans that ensure their loved ones receive the care and support they need, without jeopardizing government benefits. With our experience in Michigan estate planning and a compassionate approach, we can guide you through the options that will work best for you.

In Michigan, there are two primary types of special needs trusts:

• First-Party Special Needs Trusts: These trusts are funded with assets that belong to the individual with the disability. This often occurs when a person with a disability receives an inheritance, a personal injury settlement, or accumulates their own savings. A crucial aspect of a first-party SNT is the “Medicaid payback” provision. Upon the death of the beneficiary, any funds remaining in the trust must first be used to reimburse the state of Michigan for any Medicaid benefits received during the beneficiary’s lifetime.

Third-Party Special Needs Trusts: These trusts are funded with assets belonging to someone other than the individual with the disability, such as parents, grandparents, or other family members. A significant advantage of a third-party SNT is that there is generally no Medicaid payback requirement upon the beneficiary’s death. This means any remaining funds can be distributed to other named beneficiaries, providing a legacy beyond the individual with the disability.

A trustee (an individual or professional entity) is appointed to manage the assets within the SNT. The trustee has the discretion to distribute funds from the trust for the “supplemental needs” of the beneficiary, meaning expenses that enhance their quality of life but are not covered by government benefits. These can include:

• Education and vocational training
• Recreational activities and hobbies
• Transportation costs (vehicle modifications, public transit)
• Assistive technology and specialized equipment
• Personal care services are not covered by Medicaid
• Dental care and medical treatments are not covered by other programs
• Travel and entertainment
• Uncovered housing expenses

The Achieving a Better Life Experience (ABLE) Act, signed into law in 2014, created a new option for individuals with disabilities to save money. In Michigan, these are known as MiABLE accounts. An ABLE account is a tax-advantaged savings account that allows eligible individuals with disabilities to save and invest money without affecting their eligibility for most means-tested government benefits, up to certain limits.

• Contribution Limits: There are annual limits on how much can be contributed to an ABLE account. For 2024, this limit is $18,000 (which typically matches the federal gift tax exclusion). However, employed beneficiaries may be able to contribute an additional amount from their earned income.
• Asset Limits: While funds in an ABLE account generally do not affect eligibility for most benefits, there is a key limit for SSI. If an ABLE account balance exceeds $100,000, the beneficiary’s SSI cash benefit may be suspended. However, their Medicaid eligibility is generally not affected. The overall lifetime limit for MiABLE accounts in Michigan is $500,000.
• Qualified Disability Expenses (QDEs): Funds withdrawn from an ABLE account are tax-free if used for “qualified disability expenses.” The definition of QDEs is broad and includes many categories that enhance the health, independence, and quality of life for the individual with a disability, such as:
  • Housing (rent, mortgage, utilities, property taxes)
  • Education (tuition, books, supplies)
  • Transportation (vehicle purchases, public transit, modifications)
  • Employment training and support
  • Assistive technology
  • Health and wellness expenses
  • Financial management and administrative services
  • Legal fees
  • Funeral and burial expenses
• Account Control: Unlike an SNT, where a trustee manages the funds, the individual with the disability typically has direct control over their MiABLE account, often through a debit card or checkbook.

At Law Office of Julie A. Paquette, we are dedicated to helping families in Michigan make informed decisions about special needs planning. We take the time to listen to your concerns, understand your loved one’s needs, and explain all available options in a clear, straightforward manner. Contact us today to discuss how we can help you create a secure future for your family.