|Helena S. Mock, Esq.|
In 2014, the ABLE (“Achieving a Better Life Experience”) Act was signed into law. The law is aimed at providing a way in which those with special needs can save money without losing needs-based public benefits such as SSI or Medicaid. While an ABLE account does not replace other options such as special needs trusts, it is a tool that adds an option for us in serving our clients with special needs.
The ABLE Act is a federal law that allows states to establish a savings program for persons with disabilities. The program is modeled after the 529 college savings accounts. ABLE accounts may be used to accumulate savings for use by a disabled beneficiary. The Act provides a comprehensive list of what the funds may be used for such as education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses. Any growth in an ABLE account will not be subject to income tax so long as used for permissible expenditures.
An ABLE account may be established by anyone including a parent, friend, family member or the disabled person him or herself. The eligible beneficiary of the account must be an individual who meets the standard for disability prior to turning the age of 26. A recipient of SSI or SSDI would automatically meet the disability requirement, but those who do not receive such benefits must be certified as disabled under the Act.
While the ABLE Act has made strides in bringing to light the issue of saving for those with disabilities, there are some limits. For example, the annual contribution limit is equal to the annual gift-tax exclusion amount (currently $14,000). In addition, SSI exempts only the first $100,000 of an ABLE account. Therefore, if an individual receives SSI, his or her ABLE account may not exceed $100,000; otherwise, the individual will become ineligible to continue receiving SSI, but can remain eligible for Medicaid.
The ABLE account is also a “Medicaid Payback” account. This means that upon the death of the beneficiary, Medicaid payments made on behalf of the beneficiary subsequent to the establishment of the ABLE account must be reimbursed from any funds remaining in the account.
The ABLE account will not be useful for people who have become disabled due to an accident and who are receiving a judgment or settlement for a significant amount. And, it doesn’t work for a person with special needs who is receiving a large inheritance. There are several other instances where an ABLE account is not the answer, and therefore you should consult a qualified special needs planning attorney to discuss all available options and the benefits and limitations of each option to determine what would be best for your individual situation.