By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Special Needs Trust & Assistance Attorney
For my readers out there who have been raising a handicapped child, you are going to want to read this blog article, as you may want to consider what I am going to tell you about when planning for the future. Back in December 2014, Congress passed a law (yes it does function) which was signed by the President called the Achieving A Better Life Experience Act, or ABLE for short. This law allows parents to create a tax savings account for your special needs child under the age of 26 that allows you to give money to them as the beneficiary of the account without your child losing his or her qualification for SSI or Medicaid. The accounts are administered through the States, and so New Jersey’s version of the legislation was signed into law on January 11, 2016 by the Governor, and set to go into effect November 1, 2016. The program will be run through a third-party provider, and will be overseen jointly by the Department of Human Services and the Treasury.
So what are some of the strings attached to the account? Contributions to the account are considered gifts, and therefore the amount contributed to your child must be under the federal gift tax exemption before you get penalized by the IRS for transferring too much money. The current gift tax exemption is $14,000. Therefore, you can only put $14,000 a year into the ABLE account for your child. Furthermore, should the amount in the account exceed $100,000, any SSI benefits are suspended, but Medicaid eligibility continues. In addition, money taken out of the account must be spent on “qualified disability expenses” or the money used will be subject to tax penalties from the IRS for misuse of the funds. Such expenses include things like doctor’s appointments or your child’s education. However, your child is allowed to contribute money he or she earns to the account, so long as the monies contributed do not exceed $14,000 a year.
New Jersey is beginning the process of implementing the federal law, and we have yet to hear announcements from them on who the third party will be that can set this account up to you, along with any rules New Jersey will impose upon the account. One of the soon to be enacted statutes will allow your child the opportunity to exclude a certain amount of money in this account for purposes of qualifying for need-based scholarships. We know from reading the bill that the amount of money in the account that will be excluded to make this determination will not be lower than $25,000. Based on the requirement above, it will take more than a year to get to that amount. Stay tuned for more information as we hear more from the State as it begins implementing this law, and as always, feel free to give us a call if you have questions on these or other estate planning matters.
To discuss your NJ Special Needs matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.