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ABLE Accounts: A New Way For The Disabled To Save

ABLE accounts will soon be available in Florida as another tool to serve those with disabilities.

ABLE accounts for those with disabilities

ABLE accounts will soon be available to those with disabilities who have family and friends who wish to provide financial support to them without making them disqualified for other benefits.  There are limitations to the benefits the ABLE act provides and it is important when deciding whether to use this latest tool or utilizing a Third Special Needs Trust, to know the pros and cons of both of these options.What is the ABLE Act?

The Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE) Act became law on December 19, 2014. ABLE accounts create a new option for some people with disabilities and their families to provide for their loved one while protecting eligibility for public benefits. This new type of account will become available after the U.S. Treasury Department issues regulations and states take action to make the accounts available to their residents with disabilities and their families.

Expected Date in Florida:  July 1, 2016

What is an ABLE Account?

ABLE accounts are special savings accounts that enable eligible individuals to save for disability-related expenses. ABLE accounts are modeled after Section 529 college savings plans, and the money in them will grow tax-free. Family members will be able to contribute a total of up to $14,000 a year to one ABLE account. The total limit will be established by the state in which the account is established (often $300,000).

What are the Key Benefits of Establishing an ABLE Account?

One of the biggest benefits of the ABLE account is that the money held there is exempt from the $2,000 limit on personal assets for individuals who wish to qualify for public benefits. Generally, a disabled person with more than that amount is ineligible for Medicaid and Supplemental Security Income benefits.

Earnings in an ABLE account are tax-free under Section 529A of the Internal Revenue Code, as long as the funds are used to pay for qualified disability expenses.

An ABLE account is intended to supplement, but not replace, the benefits provided through private insurances, Medicaid, Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), the beneficiary’s employment, and other sources.

Who is eligible for an ABLE Account?

To be eligible for an ABLE account, individuals must meet the following two requirements:

Must be disabled before 26th birthday AND

Must provide proof of the severity of disability, either by meeting the disability requirements for SSI or Social Security disability benefits OR by submitting a certification that meets criteria along with a doctor’s diagnosis.

Expenses Covered Under the ABLE Account

  • Housing
  • Transportation
  • Education
  • Employment Training & Support
  • Assistive Technology & Personal Support Services
  • Health, Prevention & Wellness,
  • Financial Management
  • Legal Fees
  • Oversight & Monitoring
  • Funeral & Burial Services
  • Other expenses approved by the Secretary of the Treasury

Limitations of the ABLE Account

  • $14,000 maximum annual contribution limit
  • Tax-free earning for funds spent on qualified disability expenses, however, 10% additional tax on non-qualified distribution earnings.
  • SSI or SSDI benefits suspended if the account exceeds $100,000, however, beneficiary may still receive Medicaid.
  • Upon death of beneficiary, states may file claims for Medicaid reimbursement.

ABLE accounts vs. Third Party Special Needs Trusts

Able accounts:

Pros

  • Low cost to establish.
  • Expenditures include allowances for housing

Cons:

  • Medicaid lien payback from funds remaining at death **
  • Disability must be evident by age 26.
  • Restrictions on investment of funds.
  • Distributions to account are capped at $14,000 annually ***
  • Only $100,000 can be placed in the account

Third Party Special Needs Trusts

Pros

  • No Medicaid Payback. Trust assets can be passed on at death.
  • No age limit for onset of disability.
  • No restriction on how SNT monies are invested.
  • No cap on amount that can be deposited into SNT
  • No cap on total amount that can be placed in SNT

Cons

  • Higher cost to set up and administer.
  • No monies can be using for housing unless home is purchased.

** Although funds can be passed on to avoid the Medicaid lien payback if they pass to a brother, sister, step-brother, step-sister who is also disabled.

***This amount is based on the IRS gift tax exemption amount, and will increase as the exemption increases.

Summary:  When Is The ABLE Account Useful?

Able accounts appear to be useful when smaller funds(like $10,000.00- $20,000.00) are available for the disabled beneficiary and where the funds appear to be going in and out of the account.  The Able account will not be a useful savings device due to the payback provisions and deposit limitations.

The Miller Elder Law Firm is here to help with your questions on Estate Planning, and planning for disabled beneficiaries.  Please call our office at 352-379-1900 to learn more or complete the form and we will contact you.