ABLE Accounts: What Is It And When Should I Use It?

The Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act) created ABLE accounts.  Since the passage of the ABLE Act, many are interested in the creation and funding of ABLE accounts, which are tax-advantaged savings accounts for individuals with disabilities and their families to fund and which is roughly based on college 529 Plans.  Disabled individuals, who receive resource dependent public benefits, such as Supplemental Security Income or Medicaid with a resource limit as little as $2,000.00, can now place funds into an ABLE account, which can be managed and administered by the disabled individual himself.  Prior to the passage of the ABLE Act, a disabled individual could not save money because monies in the disabled individual’s own name or over which he had control would be counted toward the individual’s resource limit.  In most instances, this would disqualify him from these very important and essential benefits.  The ABLE account, so long as it meets the requirements, will be an excluded resource for eligibility purposes with regard to resource dependent public benefits.

To be an eligible individual and, thus, have the ability to open and fund an ABLE account, the beneficiary of the ABLE account must be able to establish 1) that he was blind or disabled, as per Social Security Administration’s definition or under a new Disability Certification criteria in §529A(e)(2), and 2) that such blindness or disability occurred prior to the date on which the beneficiary turned twenty-six (26).

A disabled individual may be the beneficiary of only one ABLE account.  Additionally, the total annual contribution to an ABLE account is limited to the amount of the federal annual gift tax exclusion ($14,000.00 in 2017).  The total amount of contributions over the life of the ABLE account are limited to the maximum amount allowed by the state’s 529 plan, which is $450,000 in North Carolina in 2017.  It is important that family members of the disabled individual do not create more than one account per individual and that they know how much each family member can contribute to the ABLE account without causing eligibility issues if multiple family members want to contribute.

The assets in the ABLE account, any contributions of the disabled individual, which must be in cash, and any distribution for qualified disability expenses are disregarded for purposes of resource dependent public benefits.  There are two exceptions to this rule: 1) distributions for housing expenses; and 2) the amount by which the account exceeds $100,000.00 for purposes of eligibility for Supplemental Security Income.  If an individual’s SSI is suspended because his account exceeds $100,000.00, he will still retain state Medicaid benefits.   Withdrawals from the ABLE account should be for qualified disability expenses, which includes “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.”

Similar to self-funded special needs trusts, there is a payback to Medicaid upon the passing of the account beneficiary.  Unlike self-funded special needs trusts, the payback is limited to the value of Medicaid services provided to the beneficiary after the account was opened.  This payback amount is generally calculated after any outstanding qualified disability expenses are paid, any funeral and burial expenses for the qualified beneficiary are paid, and any Medicaid premiums paid by the beneficiary are subtracted.

ABLE accounts can be beneficial to disabled individuals who receive a small lump sum of money (less than $14,000.00) as they are allowed to manage the funds therein as opposed to utilizing a self-funded special needs trust with a separate and independent trustee, who has complete and unfettered discretion over trust distributions.  However, a disabled individual may have several family members that would like to take advantage of the annual gift tax exclusion amount or make larger gifts that they do not want to be subject to the Medicaid payback.  In these instances, third-party funded special needs trusts have no funding limits or paybacks to Medicaid.

If you would like assistance in planning for yourself or a loved one with disabilities, including ABLE accounts and special needs trusts, contact the special needs planning attorneys at Weaver, Bennett, & Bland, P.A., at (704) 844-1400.