President Obama signed the ABLE (Achieving a Better Life Experience) Act into law on December 19, 2014, yet ABLE accounts remain unknown and underutilized. An ABLE account is a tax-advantaged savings account for individuals with disabilities under Internal Revenue Code section 529A.
Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care, and food and housing assistance. Eligibility for these public benefits (e.g., SSI, MediCal) require meeting a means or resource test; thus, an individual with disabilities must remain poor to receive benefits. The ABLE Act recognizes the extra and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working age adult with disabilities, accessible housing and transportation, personal assistance services, assistive technology, and health care not covered by insurance, Medicaid, or Medicare.
1. Who is eligible for an ABLE Account?
There are two eligibility requirements. First, a person must have a qualifying disability; second, that disability must have started before age 26. If a person meets the age restriction and is also receiving benefits under SSI and/or SSDI, that person is automatically eligible to establish an ABLE account. If the person is not a recipient of SSI and/or SSDI, but still meets the age requirement, the person could still be eligible to open an ABLE account if he or she meets Social Security's definition and criteria regarding significant functional limitations and receives a letter of certification from a licensed physician. The person does not need to be under the age of 26 to open an ABLE account, but must have had an age of onset of his or her disability before the individual's twenty-sixth birthday. If a person meets the age restriction and is also receiving benefits under SSI and/or SSDI, that person is automatically eligible to establish an ABLE account.
2. Benefits of an ABLE Account?
Income earned inside an ABLE Account is taxfree. Distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, personal support services and other disability-related expenses. Assets held in an ABLE Account do not disqualify the beneficiary from public benefit programs (within certain limits detailed below). And a person with a disability that has capacity may manage his own ABLE Account.
3. What are the limits to how much money can be put in an ABLE account?
The total annual contribution limit by all participating individuals, including family and friends, for a single tax year is currently $15,000. That amount may be adjusted periodically to account for inflation. Under current tax law, $15,000 is the maximum amount that individuals can make as a gift to someone else and not report the gift to the Internal Revenue Service (gift tax exclusion). The total limit on contributions that can be made to an ABLE account will be subject to the individual state and its limit for education-related 529 savings accounts. California has set this limit at $475,000; most states are between $300,000 to $600,000 per plan. However, for individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. The first $100,000 in ABLE accounts are exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary's SSI cash benefits are suspended until such time as the account falls back below $100,000. However, while the beneficiary's eligibility for the SSI cash benefit is suspended, this has no effect on his ability or eligibility to receive Medi-Cal assistance (Medicaid in other states). An individual on Medi-Cal only in California can have up to $475,000 in an ABLE Account and still qualify for benefits.
The beneficiary of an ABLE Account can work and fund the ABLE account with earnings in addition to the $15,000 annual funding limit. Currently, up to $12,060 in earnings may be contributed annually. Additionally, upon the death of the beneficiary, California (or the state the beneficiary resided) may file a claim for all or a portion of the funds remaining in the ABLE Account equal to the amount that California spent on the beneficiary through Medi-Cal.
4. Does an individual have to wait for his state to establish a program before opening an ABLE Account?
No. An individual is free to enroll in any state's program provided that the program is accepting out-of-state residents. ABLE National Resource Center offers an online comparison chart for up to three state programs at a time at http://www.ablenrc.org/state_compare/.
5. How is an ABLE account different than a special needs or pooled trust?
An ABLE Account will provide more choice and control for the beneficiary and family. The cost of establishing an account is likely to be considerably less than either a Special Needs Trust (SNT) or Pooled Income Trust. With an ABLE account, the beneficiary will have the ability to control his funds and, if circumstances change, still have other options available to him. Under an SNT or Pooled Income Trust, the beneficiary can never act as his own trustee. A beneficiary can only have one ABLE account but he may have an unlimited number of SNT or Pooled Income Trusts. There are funding limits to an ABLE account, while an SNT or Pooled Income Trust is unlimited. However, the ABLE account grows tax-free, while an SNT or Pooled Income Trust does not.
ABLE accounts are another tool to assist individuals with disabilities reach his greatest independence. Determining which option is the most appropriate will depend upon individual circumstances. For many beneficiaries, the ABLE account will be a significant and viable option in addition to, rather than instead of, a SNT or Pooled Income Trust.
The ABLE Act allows states to create plans that qualify under the Act. In 2015 California passed legislation to implement CalABLE and offer a state plan. On March 8, 2018 it was announced the awardee of the CalABLE contract declined to execute the project and the state is currently working on an alternative provider. It is unknown at this time when CalABLE will be implemented. That being said, ABLE Accounts are still an option for California residents.
Good resources to keep current on ABLE Account developments include the ABLE National Resource Center at www.ablenrc.org; the CalABLE Website at www.treasurer.ca.gov/able/; and Disability Benefits 101 at ca.db101.org/about.htm.
Sabrina Schneweis-Coe is a member of the San Joaquin County Bar Association's Trusts and Estates Section.