The Achieving a Better Life Experience Act (“ABLE ACT”) was signed into law by President Obama on December 19, 2014. Until now, disabled people could have no more than $2,000 in savings, without risking their eligibility for Social Security Disability, Medicaid, and other public benefits. Under the new law, a person with a disability can save up to $14,000 per year, and up to $100,000 total, and retain his or her eligibility for these benefits.
An eligible individual must be disabled prior to age 26 and either receiving SSI or SSDI benefits, or have a physical or mental impairment resulting in marked or severe functional limitations which are expected to last for at least one year or result in death. Once an account is established for any eligible beneficiary, distributions may be made for disability related expenses which include education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention, and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring and funeral/burial expenses. Distributions which are not disability related will be subject to income tax on that portion attributed to earnings from the account as well as a 10% penalty.
The ABLE account allows for tax-free growth similar to a Section 529 educational account or a Roth IRA. Any person may make non-tax deductible contributions to the account. The income earned on the account will not be taxed and qualified distributions are not taxable. Beneficiaries are limited to one ABLE account.
ABLE accounts should be viewed as another tool to use to help create a comfortable and meaningful life for persons with disabilities. However, families should be cautioned that these accounts have drawbacks as well. ABLE accounts funds are not counted as resources for other means-tested federal programs, but only to a certain limit. SSI will only disregard up to $100,000 in an ABLE account as a resource for the beneficiary. Once an ABLE account has more than $100,000, SSI will be suspended for the period of time the time is over limit. Once the account is spent down to $100,000 or less, SSI will be reinstated without the need to re-apply. Additionally, distributions for food and housing expenses from an ABLE account will be counted as income for SSI purposes. Fortunately, the same restrictions do not apply to MassHealth and there is no asset limitations in ABLE accounts for Medicaid eligibility, regardless of the suspension of SSI benefits.
It is also important to note that upon the death of the beneficiary, any remaining funds are required to be paid back to MassHealth for monies expended for medical assistance for the beneficiary after the creation of the ABLE account. This differs significantly from a third-party special needs trust which allows for family members or other remainder beneficiaries to receive the unused funds.
In anticipation of the passage of the Federal ABLE ACT, Massachusetts passed the establishment of ABLE accounts in Chapter 226 of the Acts of 2014, more commonly known as the Autism Omnibus bill.
Although these new ABLE accounts will allow for more opportunities for individuals with disabilities, careful and thoughtful analysis should be given to all estate planning options in order to select those that are most beneficial to each person.