ABLE Accounts In Massachusetts

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The Achieving a Better Life Experience Act, or ABLE Act, signed into law in 2014, will soon be launched in Massachusetts. Account values in these savings accounts, up to $100,000, will be disregarded in determining eligibility for means-tested government programs such as supplemental security income (SSI). Contributions for individuals with disabilities that began prior to the age of 26 will be post-tax, but all qualified distributions will be tax-free. Contributions, however, are limited to $14,000 per year from any source.

Although the ABLE account is a positive planning tool for individuals with disabilities, there are some limitations that you need to consider. First, Congress limited annual contributions to $14,000 total. Second, unlike third party special needs trusts, there is a Medicaid payback provision for benefits paid out on behalf of a beneficiary.

Even with these limitations, there are several scenarios where an ABLE account can be used to benefit families. First, disabled adults that are working can use the account to shelter the earnings that may push them above the SSI asset limit of $2,000. Even better, unlike a pooled special needs trust account, the disabled individual can control the account themselves. Second, ABLE accounts may be useful to families who want to gift small amounts and do not want to incur the costs of establishing a special needs trust. Please keep in mind, there is a Medicaid payback provision with ABLE accounts, so you must discuss with your attorney or advisor whether it makes sense to set up an ABLE account or special needs trust.

ABLE accounts, if used properly, will be a very useful planning tool for families. As with any estate planning, a thorough analysis must be done to determine what planning strategies should be used, including ABLE accounts.

Filed Under: ABLE Accounts, ABLE Act of 2014

ABLE Act Wins Congressional Approval

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Achieving a Better Life Experience Act of 2014, or the ABLE Act, is federal legislation that aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing, and transportation.  The Act now heads to President Obama for signature.

The purpose of the act is to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life;  and to provide secure funding for disability-related expenses of beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Supplemental Security Income (SSI), Medicaid, the beneficiary’s employment, and other sources.

Any contributor—such as a family member, a friend, or the disabled person—could establish an ABLE account for an eligible beneficiary. Qualified disability expenses would be any expenses made for the benefit of the disabled beneficiary related to education; housing; transportation; employment support; health, prevention, and wellness; miscellaneous expenses (such as financial management or legal fees); assistive technology and personal support services.

Earnings on an ABLE account and distributions from the account for qualified disability expenses would not count as taxable income of the
contributor or the eligible beneficiary. Contributions to an ABLE account would have to be made in cash from the contributor’s after-tax income.

Assets in an ABLE account and distributions from the account for qualified disability expenses would be disregarded when determining the qualified beneficiary’s eligibility for most federal means-tested benefits. For SSI, only the first $100,000 in each ABLE account would be disregarded.

Filed Under: ABLE Act of 2014