The ABLE Act: A New Tool for Special Needs Planning

The ABLE Act: A New Tool for Special Needs Planning

Imagine growing up with a disability in a world where you are forced to rely on government benefits to pay for your care and, to pour salt in the wound, you can only have $2,000 or less to your name in order to qualify for those benefits.  Imagine always having to rely on other people in your life to manage your finances and pay for your care.  Unfortunately, that is a situation in which a lot of disabled individuals find themselves: stripped of their independence and unable to make financial decisions for themselves.  With the passage of the Achieving a Better Life Experience (ABLE) Act by Congress in 2014, and Maryland’s ABLE program up and running as of November, 2017, there is now a new tool available to help disabled individuals regain some independence and control over their lives. 

The ABLE Act was introduced with the goal of easing the burden of the overwhelming financial strains disabled individuals face on a daily basis.  The ABLE Act authorizes each state to set up an ABLE program to allow disabled individuals who meet certain qualifications, or a legal guardian on their behalf, to set up an ABLE account in their name in which to hold and save assets. 

Here’s what you need to know.

Eligibility

In order to be eligible for ABLE, an individual must have a qualifying disability that began prior to the age of 26.   A disability will be considered qualifying for individuals who are receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), or those whose doctor will certify that they have a qualifying disability.

Use of Funds

Much like with any special needs trust, the funds in an ABLE account can only be used to pay for qualified disability expenses.  Some examples include education, transportation, employment training, legal fees, wellness and assistive technology.  In addition, funds can also be used from the ABLE accounts to pay for certain housing expenses, such as mortgages, rent, real property taxes and utilities, without triggering the in-kind support and maintenance penalty which can result in a reduction or loss of SSI benefits. 

Limitations

  • Disabled individuals can only have one ABLE account. 
  • Total annual contributions from all sources to an ABLE account must not exceed the Federal annual exclusion amount ($15,000 for 2018). 
  • ABLE accounts with over $100,000 will impact the beneficiary’s eligibility for SSI. 
  • ABLE accounts with over $350,000 will impact the beneficiary’s eligibility for Medicaid.  

Benefits

  • The most important benefit of ABLE is the control and independence regained by disabled individuals, because they can manage their own ABLE accounts and pay for their own needs. 
  • Assets titled in the name of the disabled individual can now be transferred directly to the ABLE account without affecting eligibility for government benefits and without the need for a complex first party special needs trust or pooled asset trust. 
  • Gifts can be made directly to the ABLE account from third parties. 
  • There is a Maryland income tax deduction for contributions made to an ABLE account up to $2,500 for each individual, or $5,000 for a couple. 
  • Earnings on assets held in ABLE accounts are exempt from federal income tax as long as the funds are kept in the account or used for qualified disability expenses.

Important Changes to ABLE under the Tax Cuts and Jobs Act

  • Disabled individuals who are able to work can now contribute their earned income to an ABLE account up to the Federal Poverty Level ($12,060 for 2018).  This is in addition to the annual contribution amount of $15,000. 
  • Traditional 529 accounts can now be rolled directly into an ABLE account without penalty, which is a very important benefit for parents who established a 529 account prior to learning about their child’s disability.

Proposed Changes to ABLE in 2018 and Beyond

Under the current law, ABLE accounts are subject to mandatory Medicaid payback, which means that the assets remaining in the account upon the death of the account holder are first repaid to Medicaid for any expenses that Medicaid has covered during the account holder’s life.  This prevents the ABLE account holders from leaving those assets to a beneficiary of their choosing.  The Maryland General Assembly is considering a new bill in the 2018 Session that would remove this restriction for ABLE accounts set up for Maryland residents and instead, allow the account holder to name someone to receive the balance of the account upon his or her death.  If this law passes, disabled individuals who reside in Maryland will be able to save more money for their future care over time.

On the federal level, there will be a push to raise the qualifying age of disability onset to 46 in order to provide benefits to more individuals, in particular disabled veterans, whose disability often does not begin until later in life. 

The addition of ABLE accounts to the Special Needs Planning toolbox is a great start to opening more doors to allow disabled individuals to retain some independence and control over their lives.  

Jennifer McManus is an attorney with the Estate Planning practice group at Davis, Agnor, Rapaport & Skalny, LLC. For questions about this article or other questions about estate planning documents, please contact Jennifer.