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A Better Partnership


Dec 2014
December 01, 2014

Estate Planning Tip: ABLE Accounts – New Option for Disabled Individuals

Congress recently passed, and President Obama is expected to sign, the Achieving a Better Life Experience Act, or ABLE Act.  This Act creates tax-favored accounts for children and adults whose disability occurred before age 26.  These accounts will function similarly to 529 college savings accounts, except that distributions must be used for “qualified disability expenses.”  This is defined quite broadly as “any expenses related to the individual’s disability, including 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 and burial expenses.” 

Disabled individuals and other donors, such as family members, can contribute up to the gift tax annual exclusion amount (currently $14,000) to these accounts each year.  However, that is an overall limit, not a per donor limit.  Assets held in an ABLE account are not subject to income tax.  Distributions made from an ABLE account are not subject to tax to the extent that qualified disability expenses exceed the distribution.  Perhaps most important of all, assets in an ABLE account and distributions from the account for qualified disability expenses will be disregarded when determining the qualified beneficiary’s eligibility for most federal means-tested benefits such as Medicaid and SSI. For SSI, only the first $100,000 in each ABLE account will be disregarded and distributions made for housing will still affect benefit levels. 

Beneficiaries are restricted to one account.  Just as with 529 plans, states will need to adopt an ABLE plan before these types of accounts can be established.   Also like 529 accounts, an ABLE account can be rolled over for the benefit of another individual with a disability. 

ABLE accounts will allow individuals to give small amounts of money to a disabled individual without disqualifying the individual from public benefits and without having to establish an expensive special needs trust.  However, clients will still need to use a third party special needs trust if they wish to give more than $14,000 per year or leave a large amount such as an inheritance.  Also, if a disabled individual unexpectedly comes into a larger sum of money, he or she will still need to establish a first party special needs trust to shelter those funds. 

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