In 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act as part of the Tax Increase Prevention Act of 2014. As reported in NJ101.5’s article, “Special accounts for the disabled,”, these accounts allow qualified individuals with disabilities the opportunity to have tax-free savings accounts without putting their eligibility for Supplemental Security Income (SSI) and other means-tested government programs like Medicaid at risk.
There are a number of benefits to an ABLE account. It can hold up to $100,000 but, if the account exceeds $100,000, SSI benefits will be suspended. Medicaid benefits, however, continue. The plan is modeled on 529 college savings plans, and interest earned on savings is free from income tax; however, contributions to the account will not be tax-deductible.
ABLE accounts are different from 529 plans in that the funds in these accounts can pay for education, health care, transportation, housing and other similar expenses. To qualify, an individual must have a disability prior to age 26. Additionally, each individual with disabilities may have only one ABLE account, and the annual contributions are capped at the federal annual gift tax exclusion ($14,000 as of 2017). At the beneficiary’s death, any remaining funds in the account will be paid back to Medicaid to cover any expenses incurred.
States can offer these types of plans to people with disabilities, but they must first adopt regulations before financial institutions can offer the plans. Today, there are 17 states with ABLE account programs. While Massachusetts has passed the ABLE Act, it has not yet instituted a program. However, out-of-state residents can open ABLE accounts under some states’ programs.
ABLE accounts are a welcome and useful tool providing special needs individuals and their families with another means of planning for the future. However, you’ll need to be careful about how it works with your other estate planning. If there are first- and third-party special needs trusts already in place, those trusts need to be considered when contributions exceed the amounts allowed under the Act or when third parties don’t want their assets to be subject to a Medicaid payback.
Thoughtful planning with a qualified attorney familiar with this practice area is necessary to achieve a family’s short-term and long-term goals. For more information on this or other special needs topics, explore our website and contact us to schedule your consultation today!
Reference: NJ101.5 (July 1, 2016) “Special accounts for the disabled”