THE ABLE ACT: A New Planning Option for Disabled Beneficiaries

There is a new planning option that allows families to provide greater financial security for disabled family members who receive needs-based public benefits such as Supplemental Security Income (SSI) and Medi-Cal.  It has been created by a federal law titled the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 or the ABLE Act, for short.  While it is still being implemented in California, it is up and running in some other states. Until the ABLE Act, it was difficult to create accounts for the benefit of disabled person receiving SSI and/or Medi-Cal because they were generally limited to cash assets of less than $2,000.  When their account balances exceeded that sum, they were at risk of losing their valuable benefits. The best planning tool for a disabled person before the ABLE Act was a third party Special Needs Trust in which assets were held in a special trust for the disabled person by a third party trustee.  Distributions from the trust for the beneficiary were limited to very specific purposes.  The result for many disabled persons is that they struggled financially due to the low $2,000 cap on their financial resources. Enter the ABLE Act which provides for the creation of ABLE Accounts. They are tax-advantaged savings accounts for individuals with disabilities and their families. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed. For the first time, eligible disabled individuals will be allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medi-Cal and other public benefits. Unfortunately, The ABLE Act cannot be used by all disabled persons receiving public benefits. The Act expressly limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. You do not need to be under the age of 26 to be eligible for an ABLE account. You could be over the age of 26, but must have had an age of onset before the individual’s 26 birthday. The ABLE Act also limits the amount that can be contributed to an ABLE Account. The total annual contribution limit is currently $14,000 per year. The amount will be adjusted periodically to account for inflation. There will also be a lifetime cap on those funds. For individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. Additionally, upon the death of the beneficiary California may file a claim to all or a portion of the funds in the account equal to the amount in which the state spent on the beneficiary through certain Medi-Cal programs. As of this date, California has not yet fully worked out the procedures for implementing ABLE Accounts.  We will keep our subscribers updated as this new law is rolled out. While the California program is still in its development stage, you don’t have to wait for California to act to create an ABLE Account. You are currently able to enroll in any state’s program provided that the program is accepting out of state residents. Ohio, Nebraska, and Tennessee are three states that accepting out of state residents.