Q. Our son, Isaiah, has high-functioning Autism Spectrum Disorder, and we are thrilled to say that he was recently accepted into trade school. I heard from a friend at work about the ABLE Act. I don’t know much about it, but I’ve heard it may be something that can help my son with his education expenses without jeopardizing any other government benefits for which he may be eligible. However, the accounts are currently limited to $14,000 in deposits per year. Has there been any talk about increasing that amount, and can you tell me more about the guidelines to open an ABLE Account? Thanks!
A. The Achieving a Better Life Experience Act, or ABLE Act, enables people with disabilities to establish special accounts where they can save up to $100,000 without jeopardizing SSI and other Medicaid benefits. What makes these accounts unique is that Medicaid eligibility is not affected by any level of funds accrued in the accounts.
Similar to 529 college savings accounts, ABLE accounts are offered through state-sponsored programs. Initially, the law required savers to open an account in the state where they lived, but legislation approved in 2015 changed that rule, so consumers can choose a plan sponsored by any state. That means they can open an account as soon as any state offers one and will have a variety of investment options, just as participants in the 529 college plans do. Currently, Nebraska, Ohio, and Tennessee have programs available and at least a dozen more state programs (including Virginia) are expected before the end of the year.
New Legislation Being Considered to Increase ABLE Account Deposit Amount Limits
As mentioned above, yearly contributions to ABLE accounts are capped at the annual gift-tax exclusion — $14,000 for now — and can grow to $100,000 without putting SSI benefits at risk. If the account exceeds the total cap, SSI benefits would be suspended until the balance is spent down. That would change under legislation known as the ABLE to Work Act that’s now headed before the full Senate.
The ABLE to Work Act calls for people with disabilities who are employed to be allowed to save their earnings up to the federal poverty level — currently $11,770 for a single person — in their ABLE accounts above and beyond the existing cap, nearly doubling their annual savings allowance.
A separate measure that also won committee approval — the ABLE Financial Planning Act — would allow families to rollover money saved for an individual with a disability in a 529 college savings plan to an ABLE account.
A third tweak to the ABLE Act, that would allow people with a disability that onsets by age 46 to qualify for an account, has not yet been considered. At present, the ABLE Act only applies to those with a disability that occurs before turning age 26.
Setting Up an ABLE Account
In Virginia, ABLE savings trust accounts will be administered by the Virginia College Savings Plan to facilitate the saving of private funds for paying the qualified disability expenses of certain disabled individuals. Again, these accounts will not be available in Virginia until the end of 2016. To take advantage of ABLE accounts offered through programs in other states in the meantime, these are some guidelines:
● Age limitation: The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability prior to 26 years of age.
● What ABLE accounts can be used for: ABLE accounts can assist individuals and families in saving and paying for the education, housing, transportation, employment training, support, assistive technology, personal support services, health, prevention and wellness, financial management, administrative services, and other expenses.
● Exclusion from taxable income (federal): Earnings on contributions to ABLE accounts are exempt from federal income tax.
● Exclusion from taxable income (state): Earnings on contributions to ABLE accounts will also be excluded from Virginia taxable income.
● Account Size Limits: If the assets in an ABLE account reach $100,000 and the beneficiary is receiving SSI benefits, monthly SSI benefits will be placed in suspension. If the assets in the ABLE account drop back below $100,000, the SSI cash benefits resume. No re-application is necessary.
● Rollovers: As more states adopt and implement the accounts, you can always roll the assets from your current account over to a new state plan.
● Number of accounts: Beneficiaries can have only one ABLE account. This is a key difference from college 529 plans. Therefore, friends and relatives will need to pool their contributions into one account with contributions not exceeding the annual limit.
● Qualifying disability expenses: A “qualified disability expense” is any cost related to the designated beneficiary as a result of living with a disability. This may include education, housing, transportation, employment training, support services, health care expenses and even administrative services that help improve the health, independence and quality of life of the beneficiary.
● Choosing a state: Look for low internal expenses and ongoing costs, good investment options with minimal fees and commissions and determine what the account minimums are to set up an account.
Medicaid Eligibility
A beneficiary will not lose eligibility for Medicaid based on the assets held in the ABLE account, even during the time that SSI benefits are suspended (as described above for an account with over $100,000). However, under the ABLE Act, when the qualified beneficiary dies (or if he/she is no longer disabled), any remaining assets in the ABLE Account are used to “pay back” any state Medicaid plan up to the value of Medicaid services provided to the beneficiary. The payback is calculated based on amounts paid by Medicaid after the creation of the ABLE Account. This is a MAJOR drawback for most families who might otherwise want to fund a Special Needs Trust without giving up the right to allow other family members to ultimately benefit from any remaining assets. The National Academy of Elder Law Attorneys is fighting to ensure that the best parts of the ABLE legislation are preserved while proposing amending the Medicaid payback requirement.
Why a Special Needs Trust is Still Recommended
Unlike an ABLE Account, assets remaining in a properly established Third Party Special Needs Trust are not recoverable by Medicaid at the time of the beneficiary’s death if the trust was funded using the assets of a parent or other third party. This allows the creator to provide for a secondary beneficiary. Therefore, an ABLE account should NOT be used as a substitute for a Third Party Special Needs Trust, but rather only a limited substitute for a First Party Special Needs Trust. A special needs trust is recommended to protect a disabled individual’s financial future. Also known as Supplemental Needs Trusts, this type of trust preserves legal eligibility for federal and state benefits by keeping assets out of the disabled person’s name while still allowing those assets to be used to benefit the person with special needs. Read more here.
Special Needs Planning
Aside from changes to the ABLE Act, the U.S. House of Representatives approved separate legislation this month impacting savings options for those with disabilities. The Special Needs Trust Fairness and Medicaid Improvement Act would allow people with disabilities to establish their own first party special needs trusts. Under existing law, individuals must rely on other family members or petition a court in order to save money through a trust regardless of their own abilities.
“This is a fundamental issue of equal protection under the law for those who are facing life-changing disease or disability,” said U.S. Rep. Glenn Thompson, R-Pa., who sponsored the bill. Similar legislation passed the Senate last year, but due to some changes, the bill approved by the House will now return to the Senate.
Since The Special Needs Trust Fairness and Medicaid Improvement Act has not been enacted yet, it is vitally important for parents to take the right steps to ensure their child will be financially secure and cared for in the event of death or disability of the parent, including:
◾Hiring an attorney who is experienced in creating special needs trusts, such as myself;
◾Clearly spelling out your wishes for the disbursement of trust funds within the trust document;
◾Finding someone you can trust that has your child’s best interests at heart to serve as trustee and/or
◾Hiring an institutional trustee that has a reputation for utilizing social workers and case managers to monitor the welfare of beneficiaries and determine how trust funds should be spent.
This month is National Special Needs Law Month. When it comes to special needs planning, Farr Law Firm, P.C. can guide you through this process. If you have a loved one with special needs, call one of our offices to make an appointment for a consultation:
Fairfax Special Needs Attorney: 703-691-1888
Fredericksburg Special Needs Attorney: 540-479-1435
Rockville Special Needs Attorney: 301-519-8041
DC Special Needs Attorney: 202-587-2797
About Evan H Farr, CELA, CAP
