30 June 2015

The ABLE Act: How Useful is the New Option for Special Needs Planning?

The Achieving a Better Life Experience Act of 2014 (ABLE) creates a new option for some people with disabilities and their families to save for future disability related expenses. Within certain limitations, funds held in an ABLE account do not interfere with eligibility for public benefits. ABLE accounts are modeled after 529 education savings accounts and are approved for states to implement in 2015. Michigan has not yet passed enabling legislation.

ABLE accounts are NOT yet available, and there are many questions about how useful these accounts will be to people with disabilities and their families. We will only get answers as states pass enabling legislation and the federal government provides more detail about what will qualify as “disability related expenses.”

Drawbacks and Limitations:
It is already clear that ABLE accounts are subject to many restrictions and will only provide benefits in limited situations. Some drawbacks and limitations of ABLE accounts are:

  • Only people who became disabled before age 26 and who meet the requirements for Social Security disability can have an ABLE account
  • Amounts remaining in the ABLE Act account at the beneficiary’s death must be first used to repay the State of Michigan for Medicaid provided to the beneficiary
  • Each beneficiary can only have one ABLE Act account
  • Total annual contributions to the ABLE account from ALL sources are limited to $14,000
  • Aggregate contributions cannot exceed the state limit for 529 contributions
  • When applying for SSI, only the first $100,000 is excluded. Any amounts over $100,000 are countable.
  • If the ABLE account balance exceeds $100,000, SSI benefits are suspended. SSI will automatically resume when the ABLE account balance dips below $100,000.
  • The account balance and withdrawals from the account are excluded assets for Medicaid and other benefits programs, but ONLY if used for qualified “disability related expenses.” It is unclear what qualifies as a disability related expense.

Practical Implications
Because ABLE accounts are subject to many restrictions, their usefulness for special needs planning will likely be limited. ABLE accounts will generally be useful for situations where the contributions will be small and the cost of setting up a first or third party trust are prohibitive. An ABLE account may be appropriate for someone whose circumstances suggest that they will not require Medicaid, but who may need to access other means tested benefits. It may be appropriate for a beneficiary who has trouble keeping their assets below the threshold amount but will not be contributing large sums.

Families should consider using third party and first party special needs trusts in lieu of ABLE accounts. Special needs trusts offer more flexibility than ABLE accounts in many ways. Special needs trusts do not have contribution or balance restrictions and can be used for beneficiaries who become disabled later in life or who do not meet Social Security’s definition of disabled. Further, distributions from special needs trusts are not limited to qualified disability related expenses.

If you have any questions about ABLE accounts or special needs trusts, please contact a member of Miller Johnson’s Elder Law practice group.