The Achieving a Better Life Experience Act of 2014, known as the ABLE Act, became a federal law in December 2014. The act is modeled on the 529 program for college savings accounts and will achieve several goals once the Treasury Department passes regulations.
For your convenience, here is a summary of the features:
- The ABLE Act allows qualified accounts to be established for disabled persons whose onset of disability was before age 26. The disabled person must either be receiving SSI or Social Security Disability (or the derivative benefit from a parent of a disabled person called CDB – child disability benefit). There may also be a chance for persons who meet the disability criteria – but who are not receiving these benefits – to be certified as ‘disabled’ by filing a disability certificate with the IRS. The IRS form will be available when federal regulations are created. Check this blog for updates.
- The ABLE Act will allow anyone to contribute a gift to the established qualified account up to the tax-free maximum of $14,000 per year. Even a modest payroll deduction contribution of $15 to $25 per month could have a beneficial effect for your qualified disabled child. Note that the disabled individual can be the beneficiary of only one qualified account.
- The ABLE Act amends the Internal Revenue Code to allow a qualified state ABLE program, similar to the 529 program, to be exempt from income taxation. The extent of income tax savings on account earnings will vary by state.
- The qualified account can accumulate up to $100,000 even if the beneficiary is receiving SSI and Medicaid. This is especially noteworthy because SSI generally limits resources to $2,000. Under the new law, if funds in the account exceed the cap, the beneficiary would not receive the SSI cash benefit because their eligibility would be ‘suspended,’ but Medicaid benefits will continue. The law also says that upon the beneficiary’s death, Medicaid may recoup what was paid during their lifetime from the qualified account, similar to a pay back supplemental needs trust.
What can this qualified account be used for?
At the present time, the law says it can be used for “qualified disability expenses” such as education, housing, transportation, employment, and assistive technology. Regulations will eventually further explain this.
When can we set up these accounts?
Be patient! No qualified disability accounts under the ABLE Act can be established until after the federal regulations are created.
Are there other advantages?
While the ABLE Act will not eliminate the need for a special needs trust to protect an inheritance or accounts exceeding $100,000, the ABLE Act account does not have legal or trust administration costs and is therefore a good substitute for smaller trusts.
Where can I learn more information?
Only a qualified special needs attorney can counsel your family effectively on this matter.
Contact my office to arrange a consultation with me, as a special needs law attorney practicing on Long Island, to discuss the ABLE Act and how it may benefit your family’s unique situation.
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