Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care, food, and housing assistance. Many of these benefits require meeting a means or resource test that limits the eligibility of individuals who report more than $2,000 in cash savings, retirement funds, and other items of significant value. The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act (which was signed into law in December of 2014) recognizes the extra and significant costs of living with a disability, and allows eligible individuals the opportunity to save and fund a variety of qualified disability expenses without endangering eligibility for Medicaid and Supplemental Security Income (SSI).
The ABLE Act is considered the most significant federal legislation addressing the needs of persons with disabilities since the Americans with Disabilities Act passed more than 25 years ago. Two years after it was introduced, ABLEnow has opened in Virginia, authorizing the establishment of tax-advantaged savings accounts for individuals with disabilities.
ABLEnow in Virginia
In 2015, Virginia became the first state to approve and pass ABLE legislation after passage of the federal ABLE Act. This was particularly poignant because the idea for the ABLE Act was originally conceived by a group of Virginia parents. The Virginia ABLE bill directed Virginia529 to develop, implement, and administer a new savings program for eligible individuals with disabilities and their families.
ABLEnow, the national ABLE savings program offered by the Commonwealth of Virginia, is now open and ready for qualified disabled applicants to open accounts. ABLE savings trust accounts are administered by the Virginia College Savings Plan to facilitate the saving of private funds for paying the qualified disability expenses of certain disabled individuals.
- An eligible individual is someone who becomes disabled before age 26 and (1) receives Social Security Disability Insurance (SSDI) or SSI; or (2) files a disability certification under rules that the IRS will write.
- ABLE savings trust 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.
- Earnings on contributions to ABLE savings trust accounts are exempt from federal income tax.
- Earnings on contributions to ABLE savings trust accounts will also be excluded from Virginia taxable income, as well.
- 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.
- As more states adopt and implement the accounts, you can always roll the assets from your current account over to a new state plan.
- 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.
According to the ABLEnow website, the program offers some of the lowest fees in the country, an online portal to manage your account and the ABLEnow Card—a debit card providing a simple, fast way to pay for qualified disability expenses. Eligible individuals can start their ABLEnow account with no enrollment fee and no minimum contribution.
Medicaid Eligibility
As stated previously, an ABLEnow 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.
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
In addition to ABLEnow starting in Virginia, the U.S. House of Representatives recently approved The Special Needs Trust Fairness Act. This would allow people with disabilities to establish their own first party special needs trusts. Read more about it in our recent blog post.
Are you the parents of a special needs child or do you have special needs? If so, it is vitally important for you to take the right steps to ensure you and/or your loved one will be financially secure in the future. 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
