What the Achieving a Better Life Experience (ABLE) Act Really Means for Families of an Individual with a Disability
By: Hinkle, Fingles & Prior, Attorneys at Law
What is an ABLE account?
ABLE accounts are similar to 529 accounts for college savings and will have the same tax advantages as 529 savings accounts; except ABLE accounts are designed to create “tax-free” savings accounts for individuals with disabilities. ABLE accounts will be funded with “after-tax” money, but the earnings in the account will not be subject to Federal income tax (although the earnings may be subject to state income tax). Also, there will be no tax when the money is taken out and used for qualified disability expenses including education, housing, transportation, health aides, employment support, and other similar expenses.
Who will be eligible for an ABLE account?
In order to be eligible to be the beneficiary of an ABLE account an individual must be blind or disabled as defined by the Social Security Administration, and the disability must have occurred before the age of 26.
Will the funds in an ABLE account jeopardize the benefits my family member with a disability receives?
Although an important feature of ABLE accounts is that they are designed to preserve means-tested government benefits such as Supplemental Security Income (“SSI”) and Medicaid, the answer is not so simple. Therefore, families must be aware of the guidelines and limitations. If an individual has over $100,000 in an ABLE account, they will be eligible for Medicaid. However, the individual will no longer be eligible to receive SSI.
Is there a limit to the funds that can be placed in an ABLE Account?
Yes, the maximum funds that can be held in an ABLE account is $300,000. Additionally, the maximum annual contribution to an ABLE account is $14,000. Therefore given the life expectancy of most individuals with disabilities, families should not rely upon ABLE accounts as their sole strategy for securing their child’s financial future.
Are there any limitations on how funds in an ABLE account can be spent?
Yes, funds can only be used on disability related expenses. Additionally, funds spent on housing will be counted as income for purposes of SSI and may jeopardize SSI eligibility.
What happens to the funds in an ABLE account when the beneficiary of the account dies?
At the death of the beneficiary, the funds in the ABLE account will first be used to reimburse the government for services it provided.
When can I setup an ABLE account?
There are a number of steps that need to be taken before ABLE accounts will be available. The Federal government took the first step in December 2014 by passing the Achieving a Better Life Experience Act. The Federal government is in the process of promulgating regulations then each state must pass a law and promulgate regulations of its own. It may take a year or more before ABLE accounts are actually available.
Do I still need a special needs trust?
Yes. Although ABLE accounts will be a nice savings vehicle, because of the limitations discussed above, ABLE accounts cannot be a stand-alone solution for individuals with disabilities. Therefore, a special needs trust remains an important part of a comprehensive plan to secure the financial future of your child with a disability. To learn more about the benefits and purposes of special needs trusts, please see our other articles on this topic at http://hinkle1.com/category/special_needs_trusts/.
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