30 June 2015

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

The ABLE (Achieving a Better Life Experience) Act creates a new option for some people with disabilities and their families to save for future disability related expenses. With certain limitations, funds held in an ABLE account do not interfere with eligibility for public benefits. ABLE accounts are created by federal law and approved for states implementation this year.

Not Available In Michigan
Because Michigan has not yet passed enabling legislation, ABLE accounts are NOT available in this state. There are many questions about how useful these accounts will be to people with disabilities and their families when Michigan makes ABLE accounts available to its residents. We will only get answers as Michigan passes 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 Social Security’s definition of disabled can have an ABLE account.
  • Amounts remaining in the ABLE account at the beneficiary’s death must first be used to repay the State of Michigan for Medicaid provided to the beneficiary.
  • Each beneficiary can only have one ABLE 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 a Social Security benefit known as Supplemental Security Income (SSI), only the first $100,000 is excluded. Any amount over $100,000 is 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 special needs 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. Distributions from special needs trusts are not limited to “qualified disability related expenses.” Contributions to a third party special needs trust are not subject to Medicaid payback.

We will continue to monitor the progress on this. If you have any questions, please contact the author or another member of Miller Johnson’s Elder Law and Disability Planning Group.