The Achieving a Better Life Experience (ABLE) Act is legislation that was passed to help provide better financial footing for certain disabled clients and their families. Below are a few important points for families and their lawyers to know about the ABLE Act.
What Does the ABLE Act Do?
The ABLE Act was signed into law in December 2014 by President Barack Obama. It allows qualified disabled people and/or their families to create a special tax-advantaged ABLE savings account without impacting their eligibility for Supplemental Security Income (SSI), Medicaid, and other public benefits programs.
How Does an ABLE Account Work?
At the time of ABLE’s passing, individuals with more than $2,000 in assets — including assets derived from a personal injury suit — were deemed ineligible for SSI or Medicaid benefits. For people with limited income, this posed a problem.
Currently, the total annual contributions by all participating individuals for a single tax year is $14,000 (adjusted periodically for inflation). Under current tax law, $14,000 is the maximum amount for gift tax exclusion. The total limit made to an ABLE account over time is subject to the rules of each state and its limit for education-related 529 savings accounts. For many states, this limit exceeds $300,000 per plan. According to the National Resource Center for the ABLE Act, however, “for individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. The first $100,000 in ABLE accounts would be exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit would be suspended until such time as the account falls back below $100,000. It is important to note that while the beneficiary’s eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid.”
How Does an ABLE account Different from a Special Needs or Pooled Trust?
Beneficiaries and their families will have more choice and control over their funds with an ABLE account. In addition, the cost of establishing an ABLE account will likely be less than that of a Special Needs Trust or Pooled Income Trust. Still, determining which option is appropriate depends on each individual’s situation.
For more information, the National Resources Center has numerous free webinars about ABLE Accounts, trusts, financial and benefits planning on their website.
What Else Should I Know?
Contributors to ABLE accounts are not expected to receive tax deductions on their deposits, even though investment income will be tax exempt. Furthermore, much like a (d)(4)(A) special needs trust, all funds that remain in an ABLE account upon the death of the disabled beneficiary must be paid back to the appropriate governmental authority.
All distributions from an ABLE account are mandated to be used exclusively for qualified disability expenses like payments for higher education, a primary residence, transportation, employment costs, and other appropriate health and wellness expenditures. If an ABLE account is used to pay for a non-qualifying expense, it risks losing Medicaid exempt status and being subject to a 10 percent income tax levy.
These are the main tenets of the ABLE Act, but, as with any piece of legislation, 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.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).