New Federal Law Allows Savings Accounts for Individuals with Disabilities
Effective January 1, 2015, the Achieving A Better Life Experience Act (ABLE), a new federal law, provides another tool for special needs planning.
Individuals with disabilities rely on public benefits programs, such as Social Security and Medicaid for essential services. However, a beneficiary must maintain less than $2,000 in assets, and public benefits may be jeopardized further by employment income, gift money, settlement proceeds or an inheritance.
The ABLE Act allows individuals and families to save private funds to maintain the health, independence and quality of life of individuals with disabilities – without jeopardizing benefits. ABLE accounts model 529 college savings accounts, to provide tax-free funds for qualified disability expenses, which are exempt from a beneficiary's includable assets for public benefits.
To be eligible, the beneficiary must have a disability as defined by the Social Security Act before turning age 26. In addition, ABLE account funds may only be used for the beneficiary's qualified disability expenses: education; housing; transportation; 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; and funeral and burial expenses.
ABLE accounts are intended to supplement beneficiaries' private and public benefits to maintain quality of life, not serve as a replacement source of income. In addition, ABLE accounts are not intended to supplant a comprehensive special needs plan. Beneficiaries are only eligible for one ABLE account, and must apply in their state of residence. An ABLE account exceeding $100,000 will suspend the beneficiary's Supplemental Security Income. Upon the beneficiary's death, the ABLE account is subject to state Medicaid payback requirements. For these reasons, ABLE accounts supplement a comprehensive special needs plan and work with a special needs trust, but have limited value for estate planning.
The ABLE Act is implemented on a state-by-state basis, with each state establishing its own application procedures, administrative regulations, and maximum contribution limits. Many are confident that states will take swift action to make ABLE accounts available, but the exact details will develop throughout 2015.