BY Ed Zetlin & Mark Friese
G
ood things are worth waiting for. After
over nine years of advocacy, the disability community received a victory
with the passage of the Achieving a Better Life
Experience Act (ABLE) in late 2014. ABLE is one
of the hottest topics in the disability community
and has been termed by many as one of the best
pieces of new legislation since the American
Disabilities Act. The ABLE Act was passed at
the end of 2014 but is not available for funding
yet. Many families with special needs members
have heard of this new legislation but may be
wondering how it might be beneficial to their
particular situation. In this article we will address these questions and provide some clarity
on the specific rules related to this new option.
One of the most noteworthy benefits of the
ABLE ACT is that it empowers the person with
disabilities to own assets beyond the presently
low allowable limit of $2,000 and save up to
$100,000 and still be eligible for Supplemental
Social Security Income (SSI) and Medicaid. Consequently, this encourages the person with disabilities to do what we all take for granted: save
for a down payment on a house, put money
aside as an emergency fund, or save for a dream
vacation. In addition, the funding of the ABLE
Act account can come from many sources, including earnings by the person that is disabled,
family, friends and other interested parties.
To be eligible to participate in the ABLE Act
account, the onset age of the disability must be
prior to turning age 26. You can be over 26 to
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establish the account, but you must have documentation of a disabling condition before age
26. Having a properly funded ABLE Act account
does not impact SSI or Medicaid eligibility.
But it gets even better. The earnings from a
properly funded ABLE Act account grow tax
deferred and, when withdrawn, are free from
taxes. This rule is similar to the 529 accounts
currently available for saving for education.
There are, however, several rules of which the
ABLE account owner must be mindful.
•
The account is limited to a maximum balance
of $100,000. If you exceed that figure, SSI
benefits would be suspended but not
terminated. In addition, the federal
maximum does not impact Medicaid, but
states are free to create their own limitations
for Medicaid coverage.
•
You can only fund the account with the
annual gift tax exclusion (currently $14,000)
per year, so it will take some time to reach
the $100,000 maximum allowed.
•
Eligible expenses that are used by ABLE Act
funds are required to be “qualified disability
expenses.” This language is still being
clarified by the Department of Treasury
and the IRS.
•
Each eligible person gets just one ABLE
account. The $14,000 current limit applies
to all contributors, including family
and friends.
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The account is required to be established
in your state of residence or the state that
contracted for ABLE. Some smaller states
may have other states administer and offer
the ABLE accounts.
• Investment selection will be limited.
•
Amounts left over after the death of the
owner are subject to Medicaid payback so
that what was paid out in benefits to the
owner under medical assistance would
be paid back before the remaining
proceeds could be distributed to
designated beneficiaries.
So, how might this work in real life? Each state
is responsible for instituting and operating an
ABLE program. States will need to create their
own procedures and forms. The Treasury Department must develop regulations that guide
the states. When your state announces that the
program is up and ready, the qualified disabled
person can open an account.
Having an ABLE account is not a replacement
for a Third Party Special Needs Trust (SNT).
When a parent, relative or friend leaves assets to
a disabled person, it should be paid into an SNT
and not the ABLE account. Why?
1. The Third Party Special Needs Trust is not
subject to the Medicaid pay-back provision.
2. The Third Party Special Needs Trust is not
subject to the $14,000 annual cap.
3. The Third Party Special Needs Trust is not
subject to the $100,000 account limitation.
What the ABLE Act does do is treat a
disabled person like every other American.
They, too, can open up a savings account.
They, too, can quickly and inexpensively
shelter small sums of money they receive
and still preserve needed public benefits.
They, too, can participate in annual estate
plan gifting from their parents and
grandparents.
In conclusion, the ABLE Act is not perfect, but
it provides disabled individuals a means to
meet their daily needs like everyone else and
still maintain the public assistance they need to
remain independent and free.
Edward Zetlin has a solo practice in the areas of elder &
disability law, guardianship/conservatorship, public benefits,
estate planning and estate administration. He serves on the
Northern Virginia Autism Association Board and is an
Adjunct Professor of Law at the Washington College of
Law of American University.
Mark Friese is the founder of Special Needs Financial Advisors,
based in Washington, D.C. With over 100 years of combined
experience, they help to navigate the many aspects of planning
with special needs family members.
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