An ABLE Act Account: A Powerful Alternative to a Special Needs Trust
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Special Needs Trust Attorney
The ABLE Act is Law
The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act became law on December 19, 2014, with the objective of creating a new option for individuals with disabilities (and their families) to save for the future, while protecting their eligibility for public benefits. It’s new and a terrific alternative to a Special Needs Trust (SNT). Let me explain to you the basics of this new law and how it can be used for your benefit.
Achieving a Better Life Experience Act (ABLE Act)
What is an ABLE Account?
An ABLE Account is a qualified savings account. Think of it as like a savings or checking account. Its purpose is to help individuals save ($$$) for disability-related expenses. Funds deposited into an ABLE account will be disregarded (or given special treatment) in determining eligibility for most federal means-tested benefits, like Medicaid, SSI, Section 8 housing, Food stamps, DDD, etc. Income earned on an ABLE account also receives preferred federal tax treatment much like a 529 college/education account, in that the income tax is deferred and not taxed unless a withdrawal is made for a nonqualified disability expense which is subject to tax plus 10% penalty.
As a result, both deposits and payments from an ABLE Account to the disabled beneficiary can allow a disabled person to keep his/her eligibility in place without fear of losing public benefits.
Who is Eligible for An ABLE Account?
To be eligible, an individual must meet two requirements:
- First, there is an Age requirement: The account beneficiary must have had an onset of disability prior to their 26th birthday; an individual can satisfy their “age 26” requirement with a well written certification that he/she became a disabled person before age 26 if supported by competent medical records and documentation.
- Second, the disability must be severe: the beneficiary must meet the disability requirements for Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), or, submit a disability certification, including a physician’s diagnosis that the individual meets the medical disability criteria including, a permanent cognitive and/or physical disorder(s).
- If you have not been formally declared disabled by the Social Security Administration, call me. We can likely help you satisfy the Medicaid Eligibility requirement.
Understanding Some of the Important Requirements of An ABLE Account
A person who qualifies to create an ABLE Account may have only 1 ABLE Account at a time. You cannot have multiple ABLE accounts. The beneficiary of the account (meaning the person entitled to receive payments from the account) is the account owner. The owner will always be the disabled person. Another person such as a parent, a guardian or a person with power of attorney can be given signature authority (i.e. power of attorney) over the account. While the law no longer imposes a federal citizenship requirement related to establishing an ABLE Account unless a given program requires that the participant be a US Citizen, it will be very hard finding any institutional custodian who will allow an account to be opened without proof of citizenship or lawful immigration status.
More Important Requirements of an ABLE Account
There are some additional provisions of the law you should consider before deciding if an ABLE Account is right for you. First the total annual contribution(s) to the account may not exceed the maximum annual federal gift tax exemption amount. The current exemption is $14,000 per year but this figure is periodically adjusted for inflation.
Second anyone, including the beneficiary, his/her family, friends and others, may make contributions to an ABLE Account. That means multiple individuals are allowed to make contributions to an ABLE Account (parents, grandparents, siblings, etc.) each of whom can donate funds as a gift to an ABLE account.
Finally the total $$$ value of the account cannot exceed the state limit for a 529A savings accounts. In New Jersey the figure is $305,000, also adjusted annually. But beware!!! This $305,000 threshold applies only for Medicaid eligibility and not SSI eligibility. This is an important point. If your ABLE account exceeds $100,000 you will lose your SSI eligibility but keep your Medicaid eligibility. If your ABLE account exceeds $305,000 you lose both.
What May Funds From an ABLE Account Be Used For?
How the funds of an ABLE Account are used is an important topic of discussion and for you to understand. Make a mistake and a person can lose their public benefits.
Distributions from an ABLE account may be made for what are known as qualified disability expenses. Qualified disability expenses are expenses that are related to the designated beneficiary’s or disability and are for the benefit of that designated beneficiary in maintaining or improving his or her health, independence or quality of life. The term qualified disability expenses can (in my opinion) be broadly interpreted and applied to permit the inclusion of basic living expenses as well as expenses for items where there is a medical necessity. Some examples of qualified disability expenses include the following:
- 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
- Basic Living Expenses
- Funeral and burial expenses
- Any other expenses approved by the Secretary of the Treasury under regulations consistent with the purpose of the program
Here is a cautioning point: Distributions made from the account which are deemed non-qualified expenditures will be subject to a 10% penalty for income tax purposes and may affect eligibility for federal means tested benefits.
How Do ABLE Account Assets Impact Eligibility for Federal Benefits?
The short answer to the above question is that if correctly set up and administered, state and federal benefits will remain in place. ABLE Account assets will be disregarded when determining eligibility for most federal means-tested benefits. But we need to evaluate the foregoing statement with the two major federal benefit programs, SSI and Medicaid.
To remain eligible for SSI only the first $100,000 in an ABLE Account will be disregarded. SSI payments (monthly cash benefit) will be suspended if the beneficiary’s account balance exceeds $100,000, but SSI benefits (eligibility) will not be terminated. Funds above $100,000 will be treated as resources. Thus, Medicaid may be placed at risk (see following paragraph).
Section 8 Housing:
Housing expenses receive the same treatment as all housing costs paid by outside sources. Social Security treats housing expenses as resources only in the month of distribution if held until the following month.
Since ABLE assets are disregarded in determining SSI eligibility, Medicaid benefits are not suspended if the ABLE Account balance is less than $100,000. This $100,000 account balance limitation is a very important factor for SSI as I mentioned earlier on this page.
The Downside of an ABLE Account
The state of New Jersey is a priority creditor for any ABLE funds upon death. If there are assets in the ABLE Account when a beneficiary dies, the assets must be used to reimburse New Jersey for Medicaid payments made on behalf of the beneficiary after the creation of the ABLE Account. The state has to file a lien claim for those funds as the state is considered a creditor, not a beneficiary, of the ABLE Account. Because of this we need to always be sensitive to the beneficiary’s health and probability of life longevity. We can help you evaluate this issue further.
Does an ABLE account seem like a good fit for you but need more clarification and information? If so, let’s talk about your interest in an ABLE Account. Call my office today. Ask for me to personally discuss your ABLE Account. I can be reached toll-free at (855) 376-5291or e-mail me at email@example.com.