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Building Your Assets and Wealth: The Basics

updated February 12, 2019
Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Many people with disabilities have low income and limited assets. It can feel hard to change this if you get public benefits, because programs like Supplemental Security Income (SSI) and WorkFirst New Jersey have rules about saving money.

However, there are steps you can take to start building your assets:

  • Programs like ABLE accounts, Individual Development Accounts (IDAs), and Plans to Achieve Self-Support (PASS) can help you save money or make investments without risking your public benefits.
  • Special Needs Trusts are another way to build up assets without losing disability benefits.
  • Tax credits, such as the Earned Income Tax Credit (EITC), can help you make the most of your income. You can get free help filling out your taxes to make sure that you get the tax credits you deserve.

Try one or more of these steps, so that you can save money and become more self-sufficient over the long-term.

ABLE accounts help you build more assets

ABLE accounts let people who have disabilities that began before they turned 26 keep money in a special tax-advantaged account. The first $100,000 in an ABLE account does not count against the $2,000 Supplemental Security Income (SSI) resource limit, and none of the money in an ABLE account counts for Medicaid.

Learn more about ABLE accounts.

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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Why Assets Matter

It's hard to think about building assets for the future when you get public benefits and don't have much income. Furthermore, programs like Supplemental Security Income (SSI) and WorkFirst New Jersey have resource limits that make it hard to save money.

However, there are ways of building your assets, even if you are on public benefits and have low income.

Building your assets means saving up money or making investments by putting money in the bank, buying stocks, putting money into a retirement account, or buying a home. It’s important to build your assets, because assets help you:

  • Become financially secure and more independent
  • Deal with unexpected expenses that may come up, and
  • Achieve your goals, like paying for school, going on vacation, buying a computer, starting a business, or owning a home.

Financial Literacy

"Financial literacy" means having a general understanding of how to manage your money. Over time, financial literacy can help you do big things, like pay for college, buy a house, or have money during old age. It can also help you stay away from scams and be ready for unexpected expenses and difficult life events.

Financial literacy is especially important for people with disabilities, because they often:

  • Spend more on everyday activities
  • Have high medical costs, and
  • Get public benefits that have rules and restrictions about money and assets.
Improve your financial literacy
  • Find a nonprofit that does financial literacy workshops, such as a local Individual Development Account program.
  • Check out Money Management International for general information.
  • Read EQUITY: Asset Building Strategies for People with Disabilities, A Guide to Financial Empowerment, a free e-book about personal finance issues for people with disabilities.
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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

ABLE Accounts

A tax-free ABLE account lets people with disabilities save some money without affecting their benefits. It also allows family and friends to give them money to use for a variety of expenses.

If you have a disability that meets Social Security’s standards for adults (SSA’s standards for blindness are different), and your disability began before you turned 26, you can open an ABLE account. This can help you:

  • Build assets in an account that has tax advantages. Your investments in an ABLE account won’t be taxed, so your wealth will grow faster. Plus, If you work and save earned income in your ABLE account, you may qualify for the federal Saver’s Credit.
  • Use your savings on many types of expenses. There are rules about spending the money in your ABLE account, but there’s also a lot of flexibility.
  • Save up money without losing benefits. Many benefits programs have resource limits, but:
    • You can have up to $100,000 in your ABLE account and keep getting Supplemental Security Income (SSI) benefits, as long as you meet all other SSI rules. If you go over $100,000, SSI benefits will stop, but they will start up again if your ABLE account drops back below $100,000 and you won't have to reapply.
    • No matter how much you have in your ABLE account, the money in it won’t affect Medicaid, WorkFirst New Jersey, Medicaid's New Jersey WorkAbility program, NJ SNAP, and most other programs with resource limits.

The bottom line: An ABLE account means that you can save up money without losing your benefits. It also lets family and friends give you money without affecting your benefits.

Does your disability qualify?

You definitely qualify for an ABLE account if you get benefits like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits (CDB), Medicaid (based on your disability), or Medicaid's NJ WorkAbility program, because they all use SSA's disability standards for adults. If you don’t get disability-based benefits, you may be able to “self-certify” that your disability meets SSA’s standards.

Opening an ABLE Account

An ABLE account is easy to set up, and you don't need a lawyer or other advisor. You can open your own ABLE account or, if needed, it can be opened for you by a parent, a legal guardian, or someone with a valid power of attorney.

Some states offer ABLE accounts and others don’t. New Jersey's ABLE account program is NJ ABLE.

If you qualify for an ABLE account, you can open one in any state that offers a nationwide program. Although you can only have one ABLE account at a time, you can switch your ABLE account from one state program to another. Compare the ABLE account options in different states.

Rules about ABLE Account Money

There are two limits on how much can be put in an ABLE account in a calendar year:

  • Up to $15,000 from any source (including your family and friends, your benefits, and other unearned income
  • Another $12,140 from your own earned income (if you have a job).

Note: This means that if you earn $12,140 or more, you could have a total of up to $27,140 go into your ABLE account in a year. If you earn less than $12,140, the amount you could contribute would be lower.

Important: You need to keep good records, to make sure that too much money isn’t put into your account.

The money in an ABLE account has to be used for certain qualified expenses, like daily living expenses, education, or housing. Many expenses qualify. It's your job to make sure an expense qualifies, and to keep records of how you use your ABLE account money.

If you take money out of an ABLE account but do not use it for qualified disability expenses, you might have to pay income tax on it plus a 10% penalty, and it could affect SSI and other benefits.

Example
Sam gets SSI and Medicaid benefits. He doesn’t work, so he has no earned income. Sam’s mother helps him by putting $500 a month into Sam’s ABLE account. Sam’s done the math and knows that by the end of the year, his mother will have deposited a total of $6,000. Sam’s brother also helps out, by making a big $5,000 deposit into Sam’s ABLE account in February. Combined, his mother and brother will put $11,000 into Sam’s ABLE account over the course of the year. For the rest of the year, the most Sam or anyone else deposits can only add up to $4,000. Even if Sam spends $10,000 on qualified expenses by November and the balance in his ABLE account drops, only $4,000 can be added to the account until the end of the year.

State ABLE programs also have limits on the total amount in your account—typically $200,000 to $500,000, depending on the state. For example, a state program might say that if you have $400,000 in your ABLE account, you cannot deposit any more money.

For more information, the ABLE National Resource Center offers an overview of ABLE Accounts as well as online webinars about ABLE accounts.

ABLE accounts and Special Needs Trusts
An ABLE account:
  • Is easier (and cheaper) to open and manage than a trust
  • Provides tax benefits (as long as any money withdrawn is spent on qualified disability expenses)
  • Gives you more control and more choices
  • Lets you use the money for housing expenses without making SSI benefits go down.

A Special Needs Trust:

  • Has no limits on contributions
  • Does not require that your disability began before you turned 26
  • Any money left in the trust when you die does not have to be used to repay Medicaid, if the trust was set up by someone other than you (a Third Party Trust), with their money
  • The money in a Special Needs Trust does not have to be spent on qualified disability expenses

The bottom line: Because of the limits on contributions to an ABLE account, you cannot replace a trust with an ABLE account. Instead, use them both as part of your overall asset-building strategy.

If you have an ABLE account and work:
  • You can put up to an extra $12,140 of your earnings into your account (on top of the regular $15,000 that is allowed). The $12,140 must be from your own earnings – it cannot be contributions from others or money you get from benefits or other unearned income.
    • Note: This means that if you earn $12,140 or more, you could have a total of up to $27,140 go into your ABLE account in a year. If you earn less than $12,140, the amount you could contribute would be lower.
  • You may qualify for the Saver’s Credit when you file your federal taxes.
  • You have to make sure that too much money isn’t contributed into your account (even if it is other people making the deposits). Check with your ABLE program if you have questions about this.
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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Individual Development Accounts (IDAs)

If you save money in an Individual Development Account (IDA), the IDA program’s sponsor or financial institution will match the money you save. The match may be anywhere from one to four times the amount you deposit. For example, if your IDA program has a 2:1 match and you deposit $50 into your account, the program will add an additional $100 towards your savings goal, so that your total savings for that month will be $150!

To open an IDA:

  • Your annual income must be 200% of the Federal Poverty Guidelines (FPG) or less ($24,980 per year for individuals)
  • You must have earned income from a job or your own business
  • You have to take financial literacy classes about things like money, debt reduction, developing a savings plan, credit, and investing; and
  • Depending on the program, you may also need to be a U.S. citizen or permanent resident.

You also have to use the IDA to save money for an approved goal. IDA programs usually allow one of the following goals:

  • Buying a first home
  • Paying for education or training costs, or
  • Funding a small business.

Most IDA programs only let you save a limited amount of money in your account, usually $4,000 to $6,000. This includes the money you deposit plus the matching funds. Once you reach the limit, you won’t be allowed to deposit any more money into the account. IDA programs also limit how long you can save (usually three years).

Important information about IDAs if you get public benefits

IDAs can be funded by government agencies, private companies, nonprofits, and individuals. Depending on how your IDA program is funded, the money you save may count against the resource limits for programs like Supplemental Security Income (SSI) and WorkFirst New Jersey.

If you get benefits from a public program, it is very important to find a federally-funded IDA program that will not count against the program's resource limit. Otherwise, you may lose your benefits. Before you open an IDA, talk to a Benefits Planner about this issue.

When you enroll in an IDA program, ask your IDA caseworker to write a letter saying that you can be in the IDA program without losing your SSI benefits. The letter should mention the “Exclusions Under Other Federal Statutes” clause. If you get SSI, take that letter to Social Security, give a copy to your local county Board of Social Services, and keep a copy for yourself.

Finding and Applying for an IDA

Once you’ve decided to do an IDA, you must take several steps to enroll in an IDA program:

  1. Decide how much money you plan to save and what you are going to do with it. You could use the money for something that will help you with your education, with your small business, or with buying a home.
  2. Find an IDA program in your area. There are IDA program directories at the New Jersey Individual Development Account Program, Prosperity Now, and the Assets for Independence Resource Center (AFI).
  3. Find out as much as you can about the IDA program you are considering.
    • How is the program funded? Is it federally funded?
      • If the IDA program is federally funded, money deposited and matched in that account will not be counted by SSI or Medicaid. That means it will not impact your benefits.
      • If you enroll in an IDA that is not funded by the federal government (for example, an IDA funded by a nonprofit or private company), the money in your IDA may cause you to lose your SSI and Medicaid benefits.
    • Does the program fund your goal?
      • Federally funded programs only let you save for small businesses, higher education, and the purchase of a first home.
      • Some privately funded IDAs may let you save for other goals, like buying a new computer or car.
  4. Go to an orientation meeting to learn more about an IDA program that interests you.
  5. If you decide to enroll, give the required personal and financial information to make sure you qualify for the program.

After you have been accepted into an IDA program, you will be given an IDA caseworker who will help you with your account. You’ll open a savings account with a bank or credit union that is tied to your IDA program. Depending on the program, you may need to deposit a certain amount of money into your account each month.

I've saved my goal amount and am ready to spend my money! Now what?

For some IDAs, there is a minimum amount of time that you must be enrolled before the matching funds start to add up. For example, the minimum could be six months for a business or educational goal. Once you have met the minimum requirements — you’ve saved the agreed on amount every month for six months and you’ve taken the financial literacy workshops — you can spend your money.

Some IDAs will put money directly in your savings account for you to spend. Other IDAs don’t put money in your savings account. Instead, they calculate how much they owe you in matching funds and make a payment to the school, business, bank, or whomever you need to pay to achieve your goal. This is to avoid any illegal or fraudulent behavior.

In any case, the matching money cannot be used until you have met all requirements, are in good standing, and are ready to spend it.

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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Plans to Achieve Self-Support (PASS)

Usually, if you get Supplemental Security Income (SSI) benefits and have income from a job or from another benefits program, like Social Security Disability Insurance (SSDI), your SSI benefits amount will go down. Also, if you save up too much money in a bank account or build your assets in any other way, you could lose your SSI benefits if you go over SSI's resource limit ($2,000 if you’re single, $3,000 for couples).

Social Security’s Plan to Achieve Self-Support (PASS) program lets people who get SSI earn more money and save that money in a special type of account. There are two main benefits:

  • You can save up resources without losing your SSI benefits.
  • The income you put into your PASS won’t be counted as income by SSI, so it won't make your benefits amount go down.

The money that you save has to be used for a work-related goal you choose, such as:

  • The cost of school or training
  • Starting a business, or
  • Paying for equipment, support services, and other expenses related to your goal.

Note: If you already go to college or have a job, you can set up a PASS to help pay for your current work, school, or health expenses.

PASS plans can help some people become eligible for SSI benefits

Most people who do a PASS already get SSI benefits. However, some people who don't get SSI can also do a PASS, if the PASS plan will help them qualify for SSI.

Here are a couple of examples of how this could work:

  • If you don’t qualify for SSI benefits because of your SSDI benefits, you might be able to put the money you get from SSDI into a PASS. Once you put the SSDI money into the PASS, it will no longer count as income for SSI and you could qualify for SSI benefits.
  • If you don't qualify for SSI benefits because of the resource limit, you may be able to move your savings into a PASS and become eligible.

Applying for a PASS

To set up a PASS, you must:

  • Get SSI benefits or become eligible for SSI benefits as a result of an approved PASS application.
  • Have a source of income other than SSI (for example, SSDI benefits or wages from a job) or have resources over $2,000 that you can use to fund your PASS.
  • Choose a work goal that will help you earn enough money to lower your SSI benefits or get off SSDI benefits altogether.
  • Write a plan that shows how saving a certain amount of money will let you reach your work goal. A Social Security PASS specialist can help you write your plan.
  • Be under age 65. If you are 65 or older, you may be able to set up a PASS if you were getting SSI benefits based on disability or blindness in the month before your 65th birthday.

On the PASS application form, you must describe your goals and how you plan to achieve them. This description should be detailed enough to convince Social Security that:

  • You have a clear plan
  • The plan is realistic, and
  • If you complete the plan, your need for SSI benefits will go down or you won't need SSDI at all.

If you do not yet have a clear goal or way to achieve it, try working on one with an organization like the Division of Vocational Rehabilitation Services (DVRS), Commission for the Blind and Visually Impaired (CBVI), or an Employment Network (EN) through the Ticket to Work program.

Help with your application

A PASS specialist is an expert who can help you with every step of the PASS application process. To contact the New York Region PASS Cadre, which serves New Jersey, call 1-800-551-9583 extension 5 or 8.

Using a PASS

After Social Security approves your plan, they'll send you instructions about how to keep good records and make sure your PASS funds and expenses are separate from your other money. Follow these rules carefully.

If a medical situation or some other issue comes up that impacts your ability to continue your PASS, talk to your PASS specialist about your options. You may be allowed to put your PASS on hold for up to 12 months without having to re-apply.

What money can you put in your PASS?

Once you have an approved PASS plan, you will put money into your PASS account that you can later use to pay for expenses related to your goal.

You cannot put any money you get from SSI into your PASS account. You can use money from:

  • A job
  • A spouse or parent
  • Your SSDI benefits, and
  • Most other sources.
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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Tax Credits and Tools

Tax credits can help you save money and build assets. A few important credits include:

  • The Child Tax Credit (CTC)
  • The Credit for the Elderly or Disabled
  • The New Jersey Property Tax Credits/Exemptions (for seniors, people with disabilities, or veterans), and
  • The federal and state Earned Income Tax Credits (EITCs).

To get any of these tax credits, you must file your taxes!

Get free help filing your taxes

If you have limited income, don't pay someone to do your taxes. If you made $54,000 or less last year, you can use a Volunteer Income Tax Assistance (VITA) center to file. With VITA, certified volunteers help prepare your taxes and make sure you get any credits you qualify for. Most sites also offer free electronic filing (e-filing). VITA sites are often at community centers, libraries, schools, shopping malls, and other convenient locations. Find a local VITA center or call 1-800-906-9887.

Free tax preparation help is also available through New Jersey Citizen Action and United Way of Northern New Jersey.

If you prefer to file your own taxes online, you can do that for free if you made less than $66,000 last year. Learn more about the IRS Free File program.

Tip: Always keep all your W-2 forms and a record of who you have worked for during the year. Then, file your taxes, even if your income is low enough that you don't have to file — you can only get a tax credit if you file your taxes.

Child Tax Credit (CTC)

The Child Tax Credit (CTC) gives parents with children under age 17 up to a $2,000 tax credit for each child. Eligible families must be working and earning at least $2,500 a year.

Note: If you get Supplemental Security Income (SSI) benefits and get money from a CTC, you should spend it within 12 months. After 12 months, Social Security will count that money toward SSI's resource limit.

Credit for the Elderly or Disabled

If you or your spouse is a U.S. citizen who got taxable disability income and was permanently and totally disabled during this tax year, you may be eligible for the Credit for the Elderly or the Disabled.

New Jersey Property Tax Credits/Exemptions

Seniors, people with disabilities, and qualified war veterans or their unmarried surviving spouses/partners who own their own home get an annual deduction of up to $250 on their property taxes. And qualified US veterans with a permanent and total disability or their unmarried suriving spouses/partners do not have to pay any property taxes on their home. For more details or to download claim forms, contact the New Jersey Department of the Treasury.

Earned Income Tax Credits (EITCs)

If you have low income, Earned Income Tax Credits (EITCs) may help lower your federal and state income taxes. Even if you don’t earn enough money to owe federal and state income taxes, you may be able to get the federal and state EITCs. Many people who qualify for EITCs don’t get them, because they don’t know they could or they don't file their taxes.

To qualify, you must have income from employment, self-employment, or employer-paid disability benefits that is below certain limits and you must file your federal and state taxes.

The amount you get from your EITCs depends on your Adjusted Gross Income (AGI), whether you are married, and the number of children you have. For 2018 (filing taxes by April 2019), the federal EITC ranges from $519 to $6,431.

The New Jersey EITC is 35% of the Federal EITC, or $182 to $2,251. For example, if your federal EITC is $4,000, your New Jersey EITC is $1,400.

Federal EITC Adjusted Gross Income (AGI) Limits and Maximum Credits*

No Children

1 Qualifying Child

2 Qualifying Children

3 or More Qualifying Children

Single

AGI limit: $15,270
Max credit: $519
AGI limit: $40,320
Max credit: $3,461
AGI limit: $45,802
Max credit: $5,716
AGI limit: $49,194
Max credit: $6,431

Married (filing jointly)

AGI limit: $20,950
Max credit: $519
AGI limit: $46,010
Max credit: $3,461
AGI limit: $51,492
Max credit: $5,716
AGI limit: $54,884
Max credit: $6,431
* Figures are for tax year 2018 (filing by April 2019).
Earned Income Tax Credit (EITC) eligibility requirements

General requirements:

  • You must meet adjusted gross income requirements (see table above).
  • You must have earned income from employment, self-employment, or employer-paid disability benefits that you got before retirement.
  • You must have a Social Security number valid for employment.
  • You cannot file your taxes as “married filing separately.” If you are married, you must file a joint tax return.
  • You must be a U.S. citizen or resident alien. If not, you must be married to a U.S. citizen or resident alien and filing a joint tax return.
  • You must live in the U.S. for more than half of the year.

Age requirements:

  • If you are claiming qualifying children, you can be any age.
  • If you’re not claiming a qualifying child, you must be 25 – 64 years of age.

Additional requirements:

  • You cannot claim foreign income or a foreign housing deduction using Form 2555 or 2555EZ.
  • You cannot have more than $3,500 in investment income (for 2018).
  • You cannot be the dependent of another person.
  • You cannot be the qualifying child of another person.

Qualifying Children

A child must meet some requirements to be considered a “qualifying child” for an EITC:

  • Relationship: The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these (for example, your grandchild, niece, or nephew).
  • Residence: The child must live at the same residence as you for more than half the year and have a valid Social Security number.
  • Age: At the end of the tax year, the child must be 18 or younger. Or, if going to school full-time, the child must be 23 or younger. The only exception is if your child is permanently and totally disabled, in which case there is no age requirement.

A qualifying child can only be listed on one tax return for an EITC.

How to Get an EITC

To claim a federal EITC, you must file a federal tax return, IRS Form 1040. If you have a qualifying child, be sure to attach a Schedule EIC.

To calculate the value of your EITC, you can use the Earned Income Credit Worksheet in your 1040 instruction booklet. Or you can ask the IRS to calculate it for you by noting an “EIC” on the Earned Income Credit line on your tax return.

To see whether you qualify for an EITC and how much you might get, use the IRS EITC Assistant.

To claim a state EITC, you must file a state tax return. Learn more about the New Jersey EITC.

EITC, SSI, and SSDI

You must have earned income to qualify for an EITC. Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) do not count as earned income. You can, however, get SSI or SSDI benefits and claim an EITC, as long as you also have earned income.

If you're on SSI, spend any money you get from an EITC within 12 months. Otherwise, that money will count toward SSI's resource limit, unless you save the money in an Individual Development Account (IDA), a Plan to Achieve Self-Support (PASS), or an ABLE account.

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Building Your Assets and Wealth: The Details

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Special Needs Trusts

A trust is a legal arrangement in which a person or organization manages assets for someone else. The trust's assets can then be used to make payments for that person's expenses. The person whose expenses are paid for by a trust is called the “beneficiary” and the person or organization who is managing the assets is the “trustee.” Many kinds of assets can be put into a trust, such as cash, stocks, bonds, and real estate.

Some kinds of trusts, called Special Needs Trusts, can be set up to hold assets for a person with a disability. When in a Special Needs Trust, the assets do not affect the person's eligibility for programs like Supplemental Security Income (SSI), Medicaid, and Section 8. That means that if you are the beneficiary of a Special Needs Trust, your trust can have more assets in it than the resource limits for benefits programs usually allow. This can let you be in a more secure financial situation without losing your benefits. For more details, see Social Security's information about Special Needs Trusts and SSI eligibility.

You or the person setting up the trust for you must do so correctly. If your Special Needs Trust is not set up correctly, the assets in your trust might be counted toward public benefits resource limits and you could lose your public benefits. And after you die, the type of Special Needs Trust that was set up determines whether or not the assets in the trust have to be used to repay the government for any Medicaid expenses.

Special Needs Trust Rules

While public benefits, such as SSI, Medicaid, and HUD housing benefits, offer basic support for food, shelter, and medical care, a Special Needs Trust can be used to pay for other things. For example, money from the trust could be used to pay for your recreation expenses, telephone bill, education, and vacations. Money from a Special Needs Trust cannot be used for expenses that are already paid for by one of your public benefits.

Additionally, the funds in a Special Needs Trust must be used to benefit only you; no one else can benefit from that trust. That said, while the trust is set up to help you, payments should not be made directly to you. Payments made directly to you count as income and may affect your benefits. When you need to pay a provider for something that is not food or shelter, the trustee will pay the money from the trust directly to the provider. Only the trustee can handle the money from the trust.

First Party Special Needs Trusts, Pooled Special Needs Trusts, and Third Party Special Needs Trusts are three common types of trust. They each have their advantages and disadvantages and the right type for you depends on your specific circumstances.

Get advice before setting up a trust

Trusts are complicated. Contact an attorney who specializes in them so that you can get advice about which type of trust is right for you and how to set it up. If you don't do things right, you could have serious problems.

The Special Needs Alliance can help you find an attorney who specializes in Special Needs Trusts.

First Party Special Needs Trusts (Medicaid Payback Trusts)

First Party Special Needs Trusts, often called Medicaid Payback Trusts, are used if you have accumulated assets, inherited assets, or gotten assets from a court settlement. In these situations, you actually own the money.

It used to be that people with disabilities were not allowed to set up their own First Party Special Needs Trust, even though it was their own money. A parent, grandparent, guardian, or court had to set up the trust, the trustee controlled the funds, and you could not be your own trustee. The laws changed in 2016, and this type of trust can now be set up by you, or by your parent, grandparent, legal guardian, or the court.

To qualify, you must be under 65 years old and must have a disability that meets Social Security's standards. If your disability doesn't meet these standards, you cannot have this type of trust.

The trust has to specify that after you die, any money left in the trust will be used to pay back the state for the amount of money it spent on Medicaid for you after the trust was set up. If money is still left over after the state has been paid, the trustee will give it to whomever you listed to get the money after you die.

Pooled Special Needs Trusts

This type of trust pools assets from different people and puts them into a large investment fund. Although the funds are pooled (used together), you still have your own separate account. Pooled Trusts offer both First Party accounts (funded with only your own money) and Third Party accounts (funded only with money from other people). As with a First Party Special Needs Trust, all beneficiaries of a Pooled Special Needs Trust must have a disability that meets Social Security's standards.

A Pooled Special Needs Trust is set up through a nonprofit organization. The nonprofit organization will administer the Pooled Special Needs Trust, take care of all the tax preparation, make investment decisions, and act as the trustee.

Before the Pooled Special Needs Trust is set up, you or your family members must explain what you want the trust to pay for and who should be consulted about these matters. Anyone can put money into the Pooled Special Needs Trust for you — parents, grandparents, even you.

Any money left in the Pooled Special Needs Trust after you die will be used to pay back the state for the amount of money it spent on Medicaid for you after the trust was set up.

Third Party Trusts

Third Party Special Needs Trusts are not as well known as First Party Trusts and Pooled Trusts, but they have the advantage that after you die, a Third Party Special Needs Trust does not need to repay the government for any Medicaid expenses.

Only certain people are allowed to set up a Third Party Special Needs Trust:

  • Your parent
  • Your grandparent
  • Your legal guardian
  • The court

Parents usually set up and supply the money for Third Party Special Needs Trusts, often through their wills and sometimes by purchasing life insurance payable to the trust. These types of trusts are often set up for a child with a disability, but they can also be for a child (or other person) without a disability. A parent can set up a trust for a child of any age, from a baby up to a senior. For example, a mother who is 90 years old could set up a trust for her 65-year-old daughter.

Other family members, such as grandparents, aunts, and uncles, can also put money into this type of trust. The only person who cannot place money into this type of trust is you, the person who will be the beneficiary of the trust.

Some parents place their property in a "living" trust and leave instructions that a separate trust will be created for their child upon their death. This type of trust is often effective immediately. Anyone can give money to the trust by either writing a check or writing a will naming the trust as the beneficiary.

If you get SSI, the money from a Third Party Special Needs Trust should not be used for housing or food. Housing and food are considered "basic needs" under Social Security laws. If you are getting free housing or food from someone else, including a family member or a trust, then your SSI benefits will be reduced or stopped. Note: Money from an ABLE account that is used for housing or food will not reduce SSI benefits. An ABLE account can be used in combination with a Special Needs Trust. Learn more about ABLE accounts.

When creating a Third Party Special Needs Trust, whoever sets up the trust must decide who will get any assets that are left in the trust after you die.

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Building Your Assets and Wealth: Next Steps

Table of Contents:
  • The Basics
  • The Details
    • Why Assets Matter
    • ABLE Accounts
    • Individual Development Accounts
    • Plans to Achieve Self-Support
    • Tax Credits and Tools
    • Trust Funds
  • Next Steps

Learn More

The World Institute on Disability has information on asset building for people with disabilities that is available as a downloadable book, EQUITY: Asset Building for People with Disabilities, a Guide to Financial Empowerment.

Tax Help

  • New Jersey Citizen Action offers free tax preparation services for households earning $54,000 or less in its Economic Security Center in Newark and (by appointment only) at satellite sites in Essex and Middlesex counties
  • United Way of Northern New Jersey provides free tax preparation during the tax season for low-income residents with simple tax returns (1040, Schedules A & B)
  • Volunteer Income Tax Assistance (VITA) centers help people file their taxes for free. Find a local VITA center or call 1-800-906-9887.

Benefits and Legal Help

For legal advocacy services for people with disabilities, call Disability Rights New Jersey at 1-800-922-7233 (in New Jersey only), 1-609-292-9742, or 1-609-633-7106 (TTY).

Asset Development Programs

ABLE Accounts

New Jersey's ABLE account program is NJ ABLE. Learn more about ABLE accounts and compare different state ABLE programs at the ABLE National Resource Center.

Individual Development Accounts (IDAs)

Each IDA program has its own application process. Get started by finding an IDA program through the New Jersey Individual Development Account Program or the Assets for Independence Resource Center (AFI).

Plans to Achieve Self-Support ( PASS)

The PASS application is complex. Get help with it from a PASS specialist. To contact the New York Region PASS Cadre, which serves New Jersey, call 1-800-551-9583 extension 5 or 8.

The Earned Income Tax Credit (EITC)

IRS Publication 596 is a comprehensive guide to the EITC. The IRS EITC Assistant can help you see whether you qualify for an EITC and how much you might get.

The New Jersey Department of the Treasury has more information about the state EITC.

The Child Tax Credit (CTC)

Get information about the CTC from the IRS.

Special Needs Trusts

The Special Needs Alliance can help you find an attorney who specializes in Special Needs Trusts.

The Social Security Administration has excellent information about Special Needs Trusts and SSI eligibility.

New Jersey Property Tax Credits/Exemptions

For details about the state's Property Tax Credit (for seniors, people with disabitilies, or veterans) or its Property Tax Exemption for veterans with disabilities, or to download claim forms, contact the New Jersey Department of the Treasury.

Ticket to Work

Social Security’s Ticket to Work Program helps people with disabilities who get Social Security benefits re-enter the workforce and become more independent. The Ticket to Work Program offers free access to employment-related services, such as training, transportation, and vocational rehabilitation.

Benefits Planning Services

If you're currently on SSI, SSDI, or CDB benefits, and you're looking for a job, a trained Benefits Planner can help you avoid complications when you are working on a job plan for your future. For questions or guidance specific to your situation, you can speak to someone at the Ticket to Work Help Line at 1-866-968-7842 or 1-866-833-2967 (TTY) Monday through Friday from 8:00AM - 8:00PM EST.

View DB101's full list of experts who can help you understand different benefits.

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