On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act, legislation long sought after by advocates for those with disabilities. Better known as the ABLE Act, this new legislation authorizes the creation of tax-free savings accounts that those with disabilities can use to supplement the often insufficient government benefits they receive.

The Need

The ABLE Act recognizes that the lives of the disabled are often filled with extra and significant costs. It also recognizes that many disabled rely on public assistance for their living expenses and/or medical care. Because many of these public benefit programs severely limit the amount of assets that recipients can hold (often no more than $2000), many suffered because they couldn’t save money to purchase needed items. Others also faced difficult situations when they unexpectedly received lump sum payments such as small inheritances or back pay. This unexpected money should have been an occasion for happiness but often ended up being just the opposite as people got kicked off the benefits which sustained their everyday needs.

The Solution

Before the ABLE Act, a disabled recipient of public benefits who came into a little bit of money would lose their benefits unless they spent the money before the next month’s asset reporting period or created a Special Needs Trust. Immediately spending money just because you have to doesn’t always result in prudent purchase decisions. Additionally, Special Needs Trusts are expensive to create and administer. With smaller amounts of money the process of trust creation could eat up a huge portion of the overall sum.

Enter the ABLE Act (and cue the superhero music)! The ABLE act allows individuals who became “Significantly Disabled” before their 26th birthday to create tax-free savings accounts into which they (or anyone else) can annually place an amount equal to the IRS annual gift tax limit ($14,000 for 2015). The account can be used to pay for “qualified disability benefits,” such as dental care, education, employment training, housing and transportation. If the person is receiving cash benefits due to their disability (SSI and/or SSDI) and the disability began before the age of 26, they will be automatically eligible for an ABLE account. If they are not receiving cash benefits, there will be a certification process through which they can become eligible for an account.

There will be a cap on the total amount the accounts can hold that will vary from state to state. This amount is tied to state limits for 529 education savings plans. Washington, however, doesn’t have a 529 plan so the Washington account cap is yet to be determined. Regardless of the state determined total cap amount, if the account assets exceed $100,000, the account holder will lose federal cash benefits (e.g. social security disability payments). Importantly, however, they will continue to eligible for Medicaid. It is also important to note that upon the death of an account holder, states can recover from ABLE accounts any Medicaid benefits paid to account holders during the period that the ABLE account was open.

Although the final regulations and the ABLE accounts themselves won’t likely be available until late in 2015, if you or a someone you know might benefit from an ABLE account we encourage you to contact our office and start the planning process now.

Barry M. Meyers
David M. Neubeck
Elder Law Offices of Barry M. Meyers, P.S.


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