Five years ago this month, the ABLE Act (the Stephen Beck, Jr. Achieving a Better Life Experience Act was signed into Federal Law, with Indiana’s ABLE Act going into effect a year later.
The concept – individuals with disabilities may establish ABLE accounts, allowing them more individual choice and control over spending on qualified expenses, while still being allowed to benefit from Medicaid and Supplemental Security Income.
By way of background, when people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Any traditional savings or investment account would count against their ability to qualify for those government benefits. What that means is that people with special needs cannot build savings out of earnings, gifts, or inheritances, and must live with very little money if they want to receive government aid.
Basic rules include:
- One ABLE account is allowed per individual.
- Annual contributions are limited to the annual gift tax exclusion (now $15,000).
- ABLE account balances over $100,000 will preclude eligibility for SSI (but not for Medicaid).
- Onset of disability must have been before age 26.
- ABLE accounts may be used only for “qualified disability expenses.”
- Earnings on ABLE accounts are tax-free.
- When the disabled person dies, the ABLE account must reimburse the state for its Medicaid expenses.
At Geyer Law, prior to ABLE, our typical recommendation to a disabled individual – or to family members – would often be to open a special needs trust. Our attorneys help create a trust that meets a disabled person’s specific needs, lifestyle and future requirements while protecting their eligibility to receive government benefits.
Special needs trusts continue to be appropriate in many situations. The only issue is that special needs trusts must be controlled by a trustee – not by the person with special needs who benefits. Complying with that rule means a lack of control and independence. ABLE accounts allow that missing choice and control.
The holiday season is an excellent time to consider opening an ABLE account, with an eye to establishing a better life experience for a disabled loved one.
– by Cara M. Chittenden, Associate Attorney at Rebecca W. Geyer & Associates
