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If your loved one has special needs, he or she likely relies on government benefits programs such as Supplemental Security Income (SSI). But if an injury settlement is on the horizon, the sudden influx of income can negatively affect eligibility for benefits. An “Achieving a Better Life Experience” (ABLE) account is one way families protect their loved one’s’ interests and future while still complying with government programs.

The ABLE program allows beneficiaries with special needs to put aside funds that will enhance their quality of life. Similarly to a special needs trust, an ABLE account is a tax-advantaged savings account that is intended to supplement, but not replace, needs-based government benefits. The money in an ABLE account can be used to pay for things that are not covered by benefits. A “qualified disability expense” might be some of the following:

  • Education
  • Housing and/or transportation
  • Employment training and support
  • Assistive technology and services
  • Health, prevention and wellness
  • Financial management and administrative services
  • Legal fees
  • Funeral and burial
  • Basic living expenses

The funds can also be used to pay for expenses related to the oversight and monitoring of the ABLE account itself.

Beneficiaries

To be eligible to establish an ABLE account, a person must be:

  • Eligible for SSI due to a disability or blindness that began before age 26,
  • Entitled to disability insurance benefits (DIB), childhood disability benefits (CDB), or disabled widow’s or widower’s benefits (DWB) based on disability or blindness that began before age 26; or
  • Certified that he or she is blind and/or has a medically determinable impairment that meets certain criteria, and that disability or blindness occurred before age 26.

The Social Security Administration offers more details about ABLE account qualifications.

Creating an ABLE Account

If the beneficiary has the capacity to do so, he or she can create and manage an ABLE account. Alternatively, a parent, guardian, or someone with power of attorney can create the account. It’s critical to have a qualified person properly set up the ABLE account, as an individual is only allowed to have one account.

Any person can contribute to an ABLE account. However, the IRS limits the total annual contributions from all sources to the amount of the gift-tax exclusion in effect for a given calendar year. In 2016, for example, the limit was $14,000.

Managing an ABLE Account

The beneficiary or a person with “signature authority” will determine when to make distributions to pay for qualified expenses. A person with signature authority can control the ABLE account for a beneficiary who is a minor child or is otherwise incapable of managing the account.

These are the main principles of the ABLE accounts, but with any financial planning tool, there is much more to know. The settlement planning experts at Milestone advise all qualified disabled people and their families to explore this potentially valuable savings option as part of a sound strategic financial plan. If you’re considering establishing an ABLE account for yourself or a loved one, we would be happy to answer your questions and explain the next steps.

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