By: Zisl Edelson, J.D., M.B.A.
Edelson Law, LLC
ABLE accounts allow family members and disabled persons to save money, while maintaining important government benefits, thanks to “The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act, which Congress passed in 2014. (https://www.congress.gov/bill/113th-congress/house-bill/647ABLE). ABLE accounts, which were created by amending IRC Code Section 529, are similar to 529 college plans, and grow tax free.
ABLE account programs are administered at the state-level. It has taken a few years for the states to implement ABLE account programs, but many states now offer ABLE accounts which are easy to open and access online. One of the best on-line resources to learn more about ABLE accounts is through the non-profit “ABLE National Resource Center” at: http://www.ablenrc.org/.
ABLE accounts have many positive features, but should not necessarily take the place of a third-party or self-settled special needs trust in an overall estate plan. Rather, ABLE accounts should be considered for use in conjunction with (or not) special needs trusts, to maximize government benefits, such as Medicaid and SSI, to enhance quality of life, and perhaps most importantly, to provide a disabled person with some measure of financial independence.
Here are the basics of what you need to know about ABLE accounts:
ABLE Account Requirements
- The account beneficiary must have become disabled prior to age 26. Unfortunately, an ABLE account cannot be used for a person who becomes disabled later in life, for example, due to a car accident or serious illness.
- The person opening the ABLE account must certify the existence of the beneficiary’s disability, and should maintain back-up records including a social security disability determination or doctor’s letter.
- Contributions must be made in cash, or as rollovers from another qualified beneficiary’s ABLE account.
- ABLE account funds may only be used for “qualified disability expenses” which include education, housing, transportation, assistive technology, health, legal fees, funeral and burial expenses, and more as detailed in the IRC proposed rules issued on June 22, 2015 (see, https://www.gpo.gov/fdsys/pkg/FR-2015-06- 22/pdf/2015-15280.pdf).
- ABLE accounts must require state Medicaid “pay back” for certain medical expenses, after the beneficiary dies.
ABLE Account Benefits
- ABLE accounts are not countable as assets for federal needs-based benefit programs, such as Medicaid, SSI, and Section 8 housing. Therefore, these accounts can be used to protect a disabled person’s assets and preserve important government benefits.
- A disabled person may contribute his or her own money (i.e. from working, or from public benefits) to an ABLE account. In contrast, a disabled person should never contribute to or co-mingle their own money with a third-party special need trust.
- ABLE account funds can be used to pay for food and shelter, without reducing the disabled person’s SSI entitlement.
- The required state Medicaid “pay back” only covers medical services provided from the date the ABLE account was opened. This can potentially leave much more money for contingent beneficiaries, compared to self-settled special needs trusts, which must pay back state Medicaid programs for medical services provided from the date of disability onset, after the beneficiary has died.
ABLE Account Drawbacks
- Annual contributions to ABLE accounts are limited to $14,000 per year.
- The maximum ABLE account balance is $100,000. If the balance exceeds that amount, the beneficiary will not be entitled to government need-based benefits, until the balance is reduced below $100,000. Accounts with balances in excess of $100,000 remain open, but the excess assets are “countable” for needs based government programs, such as Medicaid and SSI.
- A disabled person may only have one ABLE account. So, family members must coordinate to make sure that relatives do not set up duplicative accounts. Funds in duplicative accounts will be treated as countable assets for government needs- based programs such as Medicaid and SSI.
- ABLE accounts require state Medicaid “pay back” for certain medical services provided, upon the disabled person’s death. In contrast, third-party special needs trusts are not “pay back” trusts, meaning that contingent beneficiaries can be family members or others.
ABLE Account Strategies
- Since ABLE accounts can be used to pay for food and shelter, without reducing SSI payments, third-party special needs trusts should contain provisions which allow the trustee to fund an ABLE account, in order to pay for food and shelter. This is an especially helpful feature of ABLE accounts, because payment for food and shelter from special needs trusts will typically reduce SSI benefits by up to one-third.
- ABLE accounts are administered as state programs, and some states allow accounts to be opened for out-of-state residents. It’s worthwhile to investigate the various state ABLE account programs, because specific account features differ by state. For example, available features may include debit cards, online checking, and a variety of investment options. Use this online tool to research and compare the various state ABLE account programs: http://ablenrc.org/state- review.
- Since ABLE accounts require state Medicaid “pay back,” ABLE account funds should ideally be budgeted and spent to enhance the disabled person’s quality of life, over their lifetime.
- Monitor ABLE account balances closely to be ensure the balance does not exceed $100,000. Any amounts over $100,000 should be spent on qualified disability expenses, within the month, in order to preserve needs-based government benefits.
- ABLE accounts may be “rolled over” to another account for a qualified disabled beneficiary who is a brother, sister, stepbrother or stepsister, before the beneficiary’s death. A “rollover” may be strategically used to prevent state payback, if the timing allows, before a beneficiary’s death.
- If the timing is right, for example a disabled person receives an inheritance of $28,000 toward the end of the year, the annual contribution limit of $14,000 can be utilized over two months, December and January, allowing the individual to lose only one month of government benefits for the month (i.e. December) he is over-resourced.
ABLE accounts are just one method to help disabled individuals improve their quality of life and protect available resources. Any financial or legal plan must place paramount the disabled person’s unique needs and situation. The most effective special needs planning should carefully consider the disabled person’s health, personality, family situation, goals, and dreams, along with the legal and financial aspects of an overall life care plan.