HAVE YOU HEARD ABOUT “ABLE” ACCOUNTS?
Forty-one states in the United States are now offering ABLE accounts which are tax-advantaged savings programs for individuals with disabilities. These accounts are designed to preserve eligibility for SSI and Medicaid. This is particularly important for individuals with disabilities who have legally become adults and must assure that their income does not exceed eligibility requirements for public benefits. ABLE accounts allow families to deposit up to $15,000 annually into such accounts that can be used for expenses such as housing, transportation, health care and vocational training. Although some states may allow income tax deductibility for contributions to such accounts, at this time the chief tax benefit in many states is that interest on funds in the account will not be taxed. In Connecticut, for example, it may be possible to transfer $15,000 per year from a Connecticut Higher Education Trust program to an ABLE account without incurring a tax as a means of obtaining a tax deduction.
*** Please speak to your attorney and financial planner regarding this matter to see if a similar result can be achieved in other states.
How did all this come about?
It began with the passage by Congress of the Achieving a Better Life Experience Act of 2014, which became known as ABLE. Following enactment of this statute, individual states passed similar legislation, although specific program details vary. As previously mentioned, 41 states now have ABLE programs. You should check with your state to determine whether it has created its own ABLE program.
Why is this so important?
Up until now, the primary way of saving money for many disability-related expenses was the establishment of a Special Needs Trust. This remains a viable tool for saving money for qualified expenses while avoiding the loss of SSI or Medicaid benefits. However, the setting up of a Special Needs Trust is a lawyer-intensive activity that may cost several thousand dollars. In contrast, setting up an ABLE account is rather easy and may not require the retention of a lawyer. I cannot stress enough, that before taking any action to establish an ABLE account, you should clear it with your attorney and financial planner. Do your research and ask the appropriate professionals before acting.
Who is eligible for opening these accounts?
The account owner is typically the disabled individual where the onset of the disability occurred before the age of 26. A parent or otherwise legally authorized individual may also open the account for the disabled party. The authorizing document (such as Guardianship papers) would generally need to be produced by the authorized individual. Of note, although some states have not yet established an ABLE program, you are not out of luck if you live in one of these states. Fortunately, you can enroll in any other state’s program so long as that state is accepting out-of-state residents. Look at the individual state website to determine if they are accepting forenrollees from other states. Please keep in mind that there may be benefits of using your own state’s program. This is one more thing to discuss with your attorney and financial planner.
In summary, ABLE accounts can be very helpful to you in establishing a savings program to help a disabled person pay for important, qualified expenses without endangering SSI or Medicaid benefits. Although ABLE accounts do not take the place of a Special Needs Trust, they are a valuable tool to save up to $15,000/year with low costs for start-up and maintenance of the account. Further, legal fees should not be a barrier to using this device.