Posts Tagged ‘ABLE Accounts’

When You Might Want to Open an ABLE Act Account

SEPTEMBER 13, 2016 VOLUME 23 NUMBER 34
Now that ABLE Act programs have been set up in several states, you might wonder if it’s time for you to set up an account for yourself or a family member with a disability. How can you figure out whether ABLE is right for you? We’ll try to help.

The Achieving a Better Life Experience Act (ABLE Act) was passed in 2014. It permitted people with disabilities to have a separate account, usable for disability-related expenses, that would not be counted as an available resource for Supplemental Security Income (SSI) or Medicaid eligibility purposes. States were encouraged to set up ABLE Act programs, and people with disabilities were permitted to open an account with any state — provided that the state permitted non-residents to participate.

So far, four states have opened their ABLE Act programs. One of those (Florida) permits only Florida residents to participate. The other three (in Ohio, Tennessee and Nebraska) are open to anyone who qualifies.

ABLE limitations

There are a number of concerns about ABLE Act accounts. First, no more than $14,000 per year can be put into an account. Second, any funds left in the account at the death of the participant — regardless of where the money originally came from — will be paid to the participant’s state’s Medicaid program. Those two limitations make ABLE Act accounts unattractive for most family members who might otherwise think of giving or leaving substantial assets to a loved one who happens to have a disability.

There is a lot of misunderstanding about one other item: are ABLE Act accounts like investment accounts, or more like checking accounts? In some cases they might look like one or the other, but thinking of ABLE Act accounts as terrific investment opportunities for people with disabilities is, well, just misguided. Earnings will be limited, expenses are likely to be somewhat higher than similar accounts for other purposes (like education accounts, on which the ABLE Act accounts were modeled), and any account that does grow to more than $100,000 will cause suspension of SSI benefits anyway. We believe that, in most cases, ABLE Act accounts will most resemble checking or savings accounts.

ABLE uses

That doesn’t mean that the ABLE Act won’t provide terrific opportunities, however. There are a number of situations in which we imagine the ABLE Act will be a great boon for beneficiaries. A sampling of the most likely beneficial circumstances for ABLE Act accounts:

  1. The capable beneficiary. Are you the person with a disability? If you could handle a savings account yourself, but have been unable to put anything away because of the $2,000 asset limit for SSI, then the ABLE Act was written for you. You can now save any money you don’t need from your SSI each month, and park it in an ABLE Act account. You can save for vehicle repairs (or a new vehicle), for tuition, or even for the property taxes on your home. There are more uses you can consider, and you probably see the possibilities.
  2. The housing shortfall. Do you (or a family member) get assistance with your housing expenses? And when you do, does that reduce your SSI benefit? If so, you might explore the ABLE Act account as a way to pass the housing assistance through a sieve that makes it perfectly permissible — and removes any reduction in your SSI payments. Your bottom line might be to increase your SSI benefit to the highest possible amount, while still getting assistance from family members with living expenses.
  3. The small inheritance, or personal injury settlement. If you have less than $14,000 coming to you from an unrestricted inheritance, or settlement of a personal injury lawsuit, you probably already know that it could interrupt your eligibility for SSI (and, perhaps, for AHCCCS, Arizona’s Medicaid program). ABLE makes it possible to take the proceeds — so long as they are less than $14,000 net — and have no negative effect on your benefits. Even slightly larger amounts can be handled this way, depending on timing, other expenses and the particulars of each situation. But one obvious way to increase the number somewhat: in addition to the $14,000 put into an ABLE Act account in any given year, an SSI recipient is permitted to have up to $2,000 in a regular bank account — provided that it’s the only account. So a person who has no assets at all can settle a $16,000 lawsuit without having any effect on SSI.
  4. The Special Needs Trust beneficiary. This one may not always be available (trust language can differ), but it might be a great option: the trustee of a special needs trust, who has been unable to give any money directly to the beneficiary, may now be able to put money into an ABLE Act account. That could give the beneficiary control over the funds, and the ability to pay at least some bills directly. The ABLE Act could give new flexibility to trustees of special needs trusts.

We’re confident that there are other ideas out there, and we even have a few ourselves. Another time perhaps we’ll try to compare the available ABLE Act accounts.

In the meantime, we have one other suggestion: if you have created a special needs trust for your child (or other person) with a disability, you might want to consider modifying it to explicitly permit the trustee to put money into an ABLE Act account. We’re happy — eager, in fact — to talk with our clients about this idea.

ABLE Act Update: Arizona Residents Could Have Access Next Month

DECEMBER 21, 2015 VOLUME 22 NUMBER 47

We’ve written before about the Achieving a Better Life Experience (ABLE) Act and the possibility that Arizona might get its own version adopted in the next legislative session. Now comes a pleasant surprise from Washington: Arizonans with disabilities won’t have to wait for our legislature to act.

Last week Congress passed a new budget, which the President promptly signed. One tidbit, buried deep in the new law, will eliminate the limitation that ABLE Act account holders may only sign up for accounts in their home state.

To be clear, all of the other limitations on ABLE Act accounts remain. Deposits into the accounts are still limited to $14,000 per year — a cumulative total, from all sources (including any savings contributed by the person with disabilities herself). There can still only be one account. The remaining account balance still will need to be paid over to state Medicaid program (AHCCCS, in Arizona) upon the death of the account holder. If the total account grows above $100,000, there will still be a suspension of Supplemental Security Income (SSI) benefits. But at least Arizona residents won’t have to wait for the in-state legislative process.

The new federal law will be effective January 1, 2016. Theoretically, any Arizonan with a disability could set up an ABLE Act account in another state the next business day. But that would require some state to be so far ahead of Arizona that they are already offering accounts. Where can you put your ABLE Act money starting January 2?

Keep it in your pocket. (OK — we’re speaking metaphorically here. Leave it where it is.) No state has a fully-functioning ABLE Account set up yet, so far as we know (and we’ve been paying attention). Several states — Virginia, West Virginia, Utah and Massachusetts were among the earliest — have adopted enabling legislation. In fact, almost two-thirds of the states have already passed ABLE bills. Notable among the holdouts: Arizona (along with Georgia, Idaho, Indiana, Mississippi, Oklahoma and Wyoming) has not even introduced a bill in the year since the new accounts were authorized.

But that doesn’t necessarily mean Arizona is not interested. There should be an ABLE Act bill in Arizona’s legislature as soon as the new session opens next month. There is considerable interest in adopting something, and it’s likely that there will be at least a study commission in place by mid-year. Arizona ABLE Act accounts are likely to be available in early-to-mid 2017.

Should you just wait? Maybe not. If a good account structure is set up in, say, Massachusetts (or Virginia, or Florida) in the next six months, it might be time to open an account. What’s the rush? The new account might give you a chance to get someone with a small bank balance eligible for SSI. It might allow an easy repository for excess earnings for an SSI recipient with a part-time job. It might be a good place for family members to make small contributions to encourage independence. In other words, it might be a good idea, and you might not want to wait.

There are still unanswered questions about ABLE Act accounts generally: will payments for rent or other housing expenses reduce the account-holder’s SSI payments? Will someone have to review proposed distributions before they are permitted? How will accounts work for minor children and adults who are incapacitated? What authority will parents or other family members have? Those questions were going to wait (in Arizona) for adoption of an Arizona-specific plan, and now the urgency has just stepped up. But new answers have not yet materialized.

On top of that, the change adds some other, newer, questions: will it be possible to move an account from one state to another, less-expensive or easier-to-manage, state? Will Arizona’s Medicaid program understand how to handle accounts in up to 50 other jurisdictions? Will there be competition among the states (or at least among the early-adopter states), like there is in 529 Plans? Will one or two big providers come to dominate the industry? How will states handle the payback requirement when the accounts may be in any state’s program? Our answer: we’ll see.

Another question, specific to Arizona: will the new ability to open out-of-state ABLE Act accounts take the wind out of Arizona’s sails, as it were? In other words, will Arizona’s legislature decide not to pursue the option of establishing a program, especially in the face of uncertainty about administrative costs and oversight?

Many of the underlying ABLE Act issues remain unchanged. The requirement that all assets in an ABLE Act account continue to make the accounts unattractive for any large family donations (hint: use a third-party special needs trust). Annual limitations on contributions make them useful for a much narrower field than they might be. And, of course, the requirement that the ABLE Act account holder must have been disabled before age 26 sharply limits the number of people with disabilities who might qualify. Some of those problems may actually be addressed in future congressional sessions.

This week’s expansion should speed up the ABLE Act process by quite a bit. We’re looking forward to seeing how it works out.

Good News: The IRS Simplifies Its Proposed ABLE Act Rules

NOVEMBER 23, 2015 VOLUME 22 NUMBER 43

The Achieving a Better Life Experience (ABLE) Act initially looked like it would provide important opportunities to people with disabilities. Although much work was left to the Internal Revenue Service, the Social Security Administration and individual states, advocates hoped that it might open up a simple choice for beneficiaries to save money, and enhance autonomy.

The IRS issued its proposed regulations last June, and those hopes appeared to be shaky. The proposed regulations required a lot of administrative oversight, and made it look like the cost of managing ABLE Act accounts might make them look unattractive to individuals, family members and even state governments.

This week the IRS reconsidered, and issued something it calls “interim guidance” on ABLE Act regulations. The proposed regulations will now be revised to focus on ease of administration, opening up possibilities for the future, once states have finalized their ABLE Act plans.

What changed? Three important things, listed below. In addition, the Social Security Administration (which also has to adopt ABLE Act regulations) has given an exciting hint about how it might interpret the Act — making the possibilities for positive impact even greater. Here are the new developments:

  1. Simplified reporting by ABLE Act custodians and state programs. The proposed regulations published in June would have required someone — presumably the ABLE Act account managers in each state — to review each distribution from an ABLE Act account to determine whether it was proper. Advocates were concerned that this would dramatically increase the cost of ABLE Act programs (perhaps to the point of crippling those programs), and slow down distributions for needed — and usually unquestioned — disability expenditures. The IRS heard that complaint, and has let us know that the final regulations will require the ABLE Act beneficiary to keep track and file appropriate tax returns. That’s excellent news for the usefulness of ABLE Act accounts.
  2. Detailed information about contributors no longer required. The original proposed regulations would have required any person making a contribution to an ABLE Act account to provide a Social Security number. The IRS’s concern: the possibility that excess contributions might be made in a given year, and earnings would need to be reported when the excess was returned. Instead, the new regulations will allow contributors to skip the Social Security number requirement so long as the state program has a mechanism to prevent excess contributions in the first place.
  3. No need to prove disability to the ABLE Act custodian. An ABLE Act account can only be opened for a person who has a disability. That will usually mean that the beneficiary is receiving Supplemental Security Income (SSI) or Social Security Disability (SSD) payments, but some beneficiaries will have to establish their eligibility by providing diagnosis information — and they will have to show that their disability began before age 26. The original regulations would have required the ABLE Act custodian to collect, review and maintain those medical records. After advocates pointed out that this was unnecessarily complicated and might sometimes even be dangerous, the IRS changed direction and decided to require that the person opening the ABLE Act account should simply be required to swear that the beneficiary qualifies, under penalty of perjury. The same record-keeping will be required, but records can stay with the beneficiary or family members instead of being held in a central office at a financial institution or state agency.
  4. Then there is the potentially excellent news from the Social Security Administration. While SSA’s proposed regulations have not been issued, there are hints that they will agree that ABLE Act distributions for housing-related expenses are not disqualifying for SSI purposes. That could mean terrific possibilities for family assistance with the cost of housing — a perennial problem for SSI recipients under current regulations. It’s too early to know for sure exactly how Social Security will decide this question, but it’s exciting news nonetheless.

Before we leave the topic, let’s review the ABLE Act itself. There is plenty of information available on the history of the Act, how it changed over time, and the financial compromises Congress made in passing the Act, but the real importance is how the Act will work as finally adopted. Here are some highlights:

  1. States can set up ABLE Act accounts, but are not required to do so. Arizona is moving more slowly than most other states, but is considering how to authorize an ABLE Act program. Advocates are hopeful that patience will be rewarded in the next legislative session, beginning in January, 2016.
  2. Persons with disabilities — and their families and concerned friends — can make a total of up to $14,000 in contributions to an account in a given year. The $14,000 maximum is as to the total of all contributions, not the contribution for each person. Still, that raises the possibility of about $1,000/month in assistance for a person receiving SSI and/or Medicaid (AHCCCS, in Arizona), or for significant savings by the person with a disability.
  3. Total contributions over the life of the ABLE Act account are capped, but at very high numbers (currently over $400,000 for Arizona). If the ABLE Act account grows to be more than $100,000 there are other problems, but that simply can’t be an issue for the next seven years or so.
  4. The ABLE Act account will ordinarily be managed by the person with a disability, not by donors, family members or others. There will be special procedures for beneficiaries who are minors or incapacitated, but those rules aren’t yet written.
  5. One big downside: whatever is left in the ABLE Act account at the beneficiary’s death will revert to the state, to the extent that Medicaid/AHCCCS benefits have been received. That will make the ABLE Act account unattractive in some situations, but not by any means in all cases.

There is more — lots more. But the new direction from the IRS is promising, and makes advocates for people with disabilities hopeful about the future of ABLE Act accounts. Stay tuned.

The ABLE Act — How Will You Be Able to Use It?

DECEMBER 29, 2014 VOLUME 21 NUMBER 47

Last week we told you about the passage of The Achieving a Better Life Experience Act, and tried to spell out some of the important details. But until we can all see actual cases, it might be hard to figure out how to use the new law (and the accounts that it authorizes). This week we’re going to suggest some of the ways that the new ABLE accounts might be useful — and some of the pitfalls for people who use them unwisely.

First, a caveat: we don’t really know what the ABLE accounts will look like yet. That’s because we’re collectively waiting for two things: the federal government needs to adopt regulations implementing the new law, and states need to create ABLE accounts. Neither will be complete for months, at least.

What will the ABLE landscape look like in six or nine months? We predict that there will be federal regulations, and that a number of states will have created ABLE accounts that resemble (in each instance) their existing 529 accounts. But probably not all states will have gotten on board by then. If you (or the family member you want to create an ABLE account to benefit) happens to live in a state that is lagging in implementation, the new accounts will simply be unavailable. Though you might be able to choose among the Section 529 plans of several dozen states when making a contribution, the ABLE Act limits you to the state where the person with a disability lives.

Let’s assume, though, that there is an ABLE account available. Who might set up accounts, and why would they choose an ABLE account over the other alternatives available? Let’s try some examples.

Guillermo

We’ll start with Guillermo. He is 30 years old, and he was born with Cerebral Palsy. He lives with his parents, who provide for most of his daily needs. His grandmother has just died, leaving him a small inheritance of $10,000. She did not create a special needs trust for him; she simply left him the $10,000 in his name directly.

Guillermo was disabled at birth, so he will have no trouble meeting the ABLE Act requirement that his disability had to begin before age 26. Guillermo has the mental capacity to sign a receipt for his inheritance, to open an account in his own name and to sign checks on that account — though his disability makes it impossible for him to actually sign the checks. His Supplemental Security Income (SSI) payments go into an account in joint tenancy with his mother, who makes the actual payments from the account. The bank account now has about $1500 accumulated; it is a regular problem for Guillermo and his mother to figure out ways to spend the money to keep him from losing his SSI — and the Medicaid benefits that flow from it.

Guillermo is the classic ABLE Act candidate. He could put all of his inheritance into an ABLE account, and the savings would not cause him to lose his SSI or Medicaid. He would have control over how the money was spent; he would not have to get approval from a trustee or anyone else before deciding to make a purchase. Of course, he will want to make sure his expenditures do not violate the final regulations limiting the distributions from the ABLE account, but that will probably not be any problem. In fact, Guillermo can contribute future funds to the account, too — as his SSI checking account builds up, he can put funds into his ABLE account to stay below his $2,000 limit. In this way, Guillermo can set aside savings for future expenditures — such as when he is no longer able to live with his parents.

Would Guillermo have other choices? Yes, he would. He could establish a self-settled special needs trust, or participate in a pooled special needs trust. Either of those would likely have more start-up costs than his ABLE account, and the fees charged by either a separate trustee or a pooled trustee would likely exceed the annual administrative costs in the ABLE account. Most importantly, perhaps, the ABLE account would permit Guillermo to directly control his money, which is a terrific advantage.

Guillermo’s Grandmother

Knowing what a good idea the ABLE account looks like for Guillermo, should his grandmother have just set up an ABLE account before her death? Absolutely not. Why not? Because of the ABLE account’s payback requirement.

Looking at the same transaction from Guillermo’s grandmother’s perspective, it looks completely different. It would be simplicity itself for her to modify her will to provide that the $10,000 bequest to Guillermo should be held in a third-party special needs trust — probably naming his parents as trustees, and his sister as successor trustee. The cost? Perhaps an additional few hundred dollars over the cost of her basic will. The advantages? Complete discretion in how to handle Guillermo’s money (admittedly it would be handled by his parents, but there’s nothing that prohibits them from letting Guillermo make many of the decisions for them), no administrative costs, and no payback requirement.

Guillermo’s Grandfather

Meanwhile, Guillermo’s grandfather (from the other side of the family) is planning on leaving a larger bequest to Guillermo — he is going to leave Guillermo a full 1/4 of his estate. Could he utilize the ABLE account? Absolutely not. Why not? Because his gift will be more than the $14,000/year that could be contributed to all ABLE accounts for Guillermo’s benefit, and so ABLE is simply not a choice. He could, of course, make annual contributions of $14,000 until he has put 1/4 of his total estate into the account, but that’s not what he wants to do — and besides, he is in his 80s and might not live long enough to transfer Guillermo’s full inheritance into the account.

Guillermo’s Mother

Guillermo’s family is not wealthy, but his mother thinks she could afford to put as much as $10,000 per year aside for Guillermo’s future needs. Should she utilize an ABLE account? Almost certainly not.

What’s wrong with ABLE accounts for Guillermo’s mother? The payback issue is a real problem, and one that’s easily avoidable by her setting up a third-party special needs trust. Yes, that does mean that she will need to pay the cost of creating a trust, but there will not be any continuing cost for administering the trust. She can consult with an attorney, create a trust, and start contributing funds to the trust right away. She can expressly permit expenditures that the ABLE accounts might preclude. She can invest the trust’s money in any way that seems appropriate to her — not just Guillermo’s state’s ABLE provider. She can look for lower-cost and higher-yield investments if she chooses.

Would the answer be different if Guillermo’s mother only intends to contribute $2,000 per year? Not really. She ought to start with the very small investment of talking with an experienced attorney to figure out whether she really wants to create either a trust or an ABLE account; there might be even smarter, more cost-effective options (like just creating a separate account in her own name and earmarking it for Guillermo’s benefit).

Wendy

Wendy is very much in the same situation as Guillermo, with one important difference: her disability is Down Syndrome, and her ability to make her own decisions is very limited. Her parents have been appointed as guardian (of her person); otherwise, her situation is similar to Guillermo’s. In fact, Wendy’s grandmother has just died, leaving $10,000 in her name. Is her situation the same as Guillermo’s?

Not quite. The cost of an ABLE account will actually be higher for Wendy, since she can not sign a receipt for her grandmother’s estate, or negotiate the check she receives. Her parents will probably need to go back to court to get appointed as her conservator (what is called guardian of the estate in some states) in order to set up the ABLE account. Depending on her local court, they may have to file annual accountings for the ABLE account even after it is set up.

For Wendy, a pooled special needs trust might be more suitable. Yes, there will be a small start-up cost, and there will be a payback requirement at her death. But the administrative expenses are likely to be lower than the cost of a continuing court proceeding. The best answer for Wendy might vary from state to state, from county to county, and even from year to year.

What if Wendy’s SSI bank account builds up to more than the $2,000 she’s permitted to keep? The excess might very well be directed to an ABLE account. The reason the answer is different: her mother, as representative payee, has the authority to set up the account, and the administrative costs are therefore lower than they would be for a pooled special needs trust.

Wendy’s Accident

Unfortunately, Wendy was a passenger in a van that was hit by a negligent driver. The good news: Wendy’s injuries were slight, she has recovered completely, and the negligent driver was insured. His insurance company has offered $5,000 to settle her claim.

Can this money be put in an ABLE account? Yes, and that might be the best choice. Like the small inheritance from her grandmother, there will be some administrative costs (getting the court to approve the settlement and allow the ABLE account), but the ABLE account might be the best alternative. That will especially be true if her grandmother’s inheritance was already put into an ABLE account AND the accident settlement is in the next year.

Guillermo’s Accident

Tragically, Guillermo was also injured in an auto/van accident the year after he received his inheritance from his grandmother. His injuries were more serious: the insurance company is offering $60,000 to settle his claim. Can he use his ABLE account?

If you’re paying attention, you probably think the answer is “no.” But it’s not. There is a two-step way Guillermo can use his ABLE account to receive the lawsuit settlement.

First, he could agree with the driver’s insurance company to make not a single $60,000 lump-sum payment but annual payments of $9,000 for seven years. That means that he would actually get a few more dollars in total settlement. Each year’s $9,000 can be contributed to the ABLE account without running afoul of the $14,000 annual limitation (which will rise to $15,000 within a couple years of Guillermo’s accident, making it even easier).

Of course, Guillermo still will have a payback requirement upon his death. But the language of the ABLE payback is considerably gentler than the payback requirements for special needs trusts — the ABLE account should be available to pay Guillermo’s funeral and burial expenses, for instance, without requiring that he prepay those bills.

Guillermo’s Sister

Guillermo was not alone in the van. His sister Louise was also in the van, and she was horribly injured. She was disabled by the accident; her work history is such that she receives about $500/month from Social Security Disability and another $300/month from SSI. Because she gets SSI, she also gets Medicaid coverage. She was 28 at the time of the accident.

Can Louise’s potential settlement be directed to an ABLE account, in the same way that her brother’s was? Absolutely not. Why not? Because her disability onset was after age 26. That arbitrary (and unfair) limitation, incidentally, is not based on anything but budget considerations; if Louise and people like her had access to ABLE accounts, the anticipated cost to the treasury would mushroom and Congress could not figure out how to pay for it.

Your Situation Here

As you can see, it might be hard to figure out whether an ABLE account is the right way to resolve a particular person’s problem. Some generalizations, though: if you are considering setting aside your money for a family member with a disability, ABLE is probably not your best choice. If the problem is how to handle money belonging to the person with a disability, there are quite a few factors to consider. You should get good legal advice to figure out the best solution in your situation.

ABLE Act Passes — We’ll Tell You What It Means

DECEMBER 22, 2014 VOLUME 21 NUMBER 46

The Achieving a Better Life Experience Act passed the U.S. Senate last week, and President Obama signed it over that same weekend. But what does it mean for people with disabilities, and for their families? How will you be able to use the accounts authorized by the ABLE Act?

The ABLE Act is loosely connected to Section 529 of the Internal Revenue Code. You might recognize that number — the prior law created very popular accounts for prepaid tuition. There is lots of information about 529 Plans, including the popular “Saving for College” website. To better understand ABLE, it might make sense to first describe how 529 plans work.

529 Plans

There are dozens of 529 Plans available. Almost every state has adopted at least one 529 Plan (some states have more than one). They often look very much like mutual funds; you put your money into the account, it is managed by the administrator, and it grows along with the market (or the segment of the market utilized by your particular plan).

You can invest your money in a 529 Plan set up by a state other than yours, or where your prospective student lives. So you might live in Arizona, have a grandchild in Arkansas, decide to invest in Alaska’s plan (it happens to be administered by T Rowe Price), and ultimately use the account to pay for your grandchild’s education in Alabama (just to stay in the “A” states). Not every state’s plan allows out-of-state investments, but most do. There are also “Prepaid Tuition” plans available in many states; they are just what the name implies, though usually the funds can be used for other colleges when the time comes (though there may be incentives to keep the money, and the student, at the predetermined college).

You can set up a 529 Plan for, say, your child — and both sets of grandparents can set up separate accounts for the same student. The multiple plans for a given child can be from different states. The maximum asset limit is set in each plan; if you make more than a $14,000 contribution to a plan for a given student in one year, you may have to file a federal gift tax return (there’s a special rule if you contribute up to $70,000 in one year, but that’s going too deeply into 529 Plans for our purposes).

If you do set up a 529 Plan for a child or grandchild, and that prospective student dies, decides not to go to college, or gets a really good scholarship, you can change the beneficiary of your plan to another family member. You keep pretty impressive control over the plan — and yet it is not considered part of your estate for federal estate tax purposes.

Though you do not get any income tax deduction when you do set up a plan, any later withdrawals for qualified education expenses come out of the plan tax-free. That means that no one has to pay the income tax on the interest and investment income over the years the plan is in place. That’s one of the best parts of a 529 Plan.

ABLE Accounts

The new ABLE Accounts will be similar to 529 Plans in a number of ways, but very different in others. In fact, the ABLE Act creates a new section, right after Section 529, of the tax code. It’s numbered as Section 529A, just to make the connection clearer. Here are some of the highlights of the new Section 529A:

  • A person with a disability can only have an ABLE Account if they were severely disabled by age 26. Why this limitation? It’s mostly about federal budgets; if every person with a disability could open an ABLE Account, the projected cost of the program would mushroom. What does it mean to have a disability before age 26? The easy answer is that someone who was receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI, or SSD) benefits by that age qualifies. Others might qualify, but it will be harder to establish eligibility.
  • Each person with a disability can have just one ABLE Account, and it must be set up in the state where they live. If they move to another state, the account probably will not have to move. But that raises a fairness issue: if the state where the person with a disability resides just doesn’t offer an ABLE Account, he or she will not have the option available.
  • Contributions to an ABLE Account may not exceed $14,000 in a given year. That’s total contributions — if the person with a disability puts in, say, $5,000, then other family members may not contribute more than $9,000. That figure is indexed to the maximum annual gift tax exclusion amount (though gift taxes are mostly irrelevant to ABLE Accounts), so it should go up to $15,000 in a year or two.
  • The maximum size of an ABLE Account will be set by state law. Expect it to be in the range of several hundreds of thousands of dollars. But if the account grows to more than $100,000, the beneficiary will lose Supplemental Security Income (SSI) benefits — but not state Medicaid eligibility.
  • When the ABLE beneficiary dies, remaining assets in the account go to the state Medicaid program which provided benefits during life (after payment of other pending bills, and limited to the amount the Medicaid program actually paid for the beneficiary’s care).
  • If ABLE Account funds are used to pay for “qualified disability expenses,” there will be no income taxation on the interest or gain in value of the ABLE assets, and the expenditure will not be counted as income to the beneficiary. We don’t yet know exactly what “qualified disability expenses” will mean, as we’ll have to wait for the government to define the term. The law does say, though, that the categories for “qualified” expenditures will include “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, funeral and burial expenses”.

What does that mean for a given person with a disability (and for his or her family)? Who will be good candidates for ABLE Accounts, and who will not? Should you consider an ABLE Account as an alternative to a special needs trust? Those questions — and more — will be addressed in our newsletter next week. Stay tuned.

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