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John Bair
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How People With Disabilities Can Save Money, Without Losing Government Benefits

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Government benefit programs, like Medicaid and Supplemental Security Income (SSI), are designed to keep low-income people fed, clothed, housed and healthy. As a result, these programs are “means-tested,” only open to people with little income and few assets.

1 In 50 Americans Rely On SSI Due To A Disability

Millions of people with disabilities, including many children, depend on these programs every day. In fact, over 6 million people with disabilities under the age of 65 currently receive Supplemental Security Income, according to the Social Security Administration. That’s nearly 2% of the total American population. Since Medicaid eligibility is often determined through receipt of SSI benefits, it shouldn’t be surprising that more than 9 million people currently qualify for the government’s low-income health insurance program due to a disability.

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Around 48% of these Medicaid recipients are children, the Kaiser Family Foundation reports.

Employment Is Down Among Adults With Disabilities

These numbers shouldn’t shock us. Poverty and disability are closely intertwined. People with disabilities are twice as likely to live in poverty than people without disabilities, according to NPR, often because people with disabilities are far more likely to be unemployed. Only 1 in 7 adults with disabilities are employed and recent research from Cornell University’s Employment and Disability Institute has shown that America is doing worse, not better, on this count. In 1990, more than 1 in 4 adults with disabilities were working.

Government assistance programs may even be contributing to this problem. Save up more than $2,000 and an SSI recipient will lose their benefits. That can be a strong disincentive to work, one that asks people with disabilities to choose between employment or their benefits. As Michael Morris, executive director of the National Disability Institute, notes in NPR’s piece on the topic, many adults with disabilities are consigned to poverty by the very way our nation’s social safety net is structured.

The Achieving A Better Life Experience Act

Improvements to the system, however, are coming. In 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE) into law, which will allow people with disabilities and their families to open special savings accounts. ABLE accounts won’t be taxed and, in general, their assets won’t count toward means-tested assistance programs.

Opening an ABLE account will allow many people with disabilities, along with families caring for children with disabilities, to begin saving money. In turn, those investments could be used to purchase assets, like accessible vehicles, that actually reduce their reliance on government assistance in the long-run.

Coming Into Money: A Challenge For Adults & Children With Disabilities

Another strategy, establishing a special needs trust, was designed, not to replace government benefits with personal savings, but to find a workable balance.

Special needs trusts aren’t right for everyone. They’re most appropriate when people with disabilities are set to receive moderate to substantial sums of money, like an inheritance or lawsuit settlement. If that money goes directly into the person’s bank account, there’s little doubt that they’ll become ineligible for Medicaid and SSI. Place it into a special needs trust, on the other hand, and their benefits won’t be threatened.

Assets in the trust, which are managed and disbursed by a trustee, can be used to purchase goods and services that government benefits don’t cover. But setting up an individual trust isn’t particularly cheap. Another catch is that, while first-party individual trusts can be funded with the beneficiary’s own money, they can’t be established legally by the beneficiary. Those are two reasons why many people, especially those receiving modest amounts of money, consider pooled trusts as an alternative.

Strength In Numbers: How A Pooled Special Needs Trust Works

Instead of selecting your own trustee, which can be a daunting choice at times, pooled trusts allow people with disabilities and their families to “pool” their financial assets together. The money from multiple families or individuals is placed in a master trust, which is managed by experienced financial professionals at a non-profit, but each individual beneficiary holds their own account. In some cases, beneficiaries are even paired with social workers or advisors to help them create a disbursement plan that matches their lifestyle.

By pooling assets together, pooled special needs trusts can benefit from more innovative investment strategies, but often come at a fraction of the cost of an individual trust. Pooled trusts may be particularly appropriate for people with disabilities who don’t have someone else to establish an individual trust, since beneficiaries are allowed to start their own accounts.