BY MICHAEL SMITH AND RICHARD BARID MAY 2015
How the ABLE Act will impact the lives of special needs children
Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care, and food and housing assistance. Eligibility for these public benefits (SSI, SNAP, Medicaid) requires meeting a means or resource test that limits eligibility to individuals who report more than $2,000 in cash savings, retirement funds, and other items of significant value. To remain eligible for these public benefits, an individual must remain poor.
Parents of children with special needs have a new option in 2015 to provide for those children’s futures, thanks to a new act that President Obama signed into law. For the first time in public policy, the Achieving a Better Life Experience (ABLE) Act recognizes the extra and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working age adult with disabilities, for accessible housing and transportation, personal assistance services, assistive technology, and health care not covered by insurance, Medicaid, or Medicare.
The ABLE Act is built on the foundation of the current 529 education savings plans that help families save for college. In the case of ABLE, families now have a tax-deferred savings vehicle to save for the care of people with disabilities. The National Disability Institute estimates there are 58 million individuals with disabilities in the United States. Many of these individuals will qualify for ABLE accounts.
The ABLE Act allows people who are diagnosed with a disability before the age of 26 to save for quality of life purchases without affecting their qualification for social security benefits (SSI) or Medicaid. An eligible individual: (1) receives Social Security Disability Insurance (SSDI) or SSI; or (2) files a disability certification under rules that the IRS will write.
Prior to the passage of this act, people with special needs would be disqualified for government benefits if they had any more than $2,000 in assets.
The passage of this act is expected to promote the health, independence, and quality of life for people with special needs and end a cycle of poverty, dependence, and limitation.
The ABLE Act allows people with special needs to set up an account similar to a 529 Account, a popular college savings plan. They can save up to $100,000 in the account without affecting their SSI benefits. If the account accrues more than $100,000, SSI payments will be suspended but not terminated. The amount in the account does not affect Medicaid payments. The cap on the account is governed by the state limit on 529 plans.
Anyone may contribute to the account as long as cumulative contributions do not exceed the gift tax exclusion amount in any given year, which is $14,000 this year and is adjusted for inflation. Contributions are not tax deductible but the accounts can grow tax free, similar to a Roth IRA.
ABLE account holders can withdraw money from the account without paying taxes to use for any qualified expenses, including education; housing; transportation; employment training and support; assistive technology and personal support services; health, prevention, and wellness; financial management and administrative services; legal fees; expenses for oversight and monitoring; funeral and burial expenses; and any other expenses approved under regulations. Housing distributions count as income for SSI purposes.
The only manner that having an ABLE account can affect Supplemental Security Income (SSI) benefits is if the ABLE account exceeds $100,000. SSI benefits would be suspended but not terminated. In other words, the beneficiary of the account would not receive a check but would retain eligibility for the SSI program. It never affects Medicaid.
If an account holder wanted to use money in the account for a non-qualified expense, say a trip to Disneyland, the amount withdrawn would be subject to taxes and a 10% penalty. Money left in the account after the death of the account holder is subject to Medicaid reimbursement, which means that Medicaid is entitled to recoup any funds spent on the account holder during his lifetime. Remaining funds would be distributed to the deceased’s estate or designated beneficiary.
Another long-standing option for parents of children with special needs is a Special Needs Trust. ABLE accounts are not a replacement for a Special Needs Trust but could be another option if a Special Needs Trust does not fit the needs of a family.
A Special Needs Trust, is exempt from the SSI and Medicaid resource tests, but not from Medicaid reimbursement. A Special Needs Trust would not have an investment cap, like an ABLE account, but is subject to income tax. A qualified estate planning attorney can help you determine which plan is best for your family.
It is expected that families will be able to set up ABLE accounts sometime this year. Although the law now allows such accounts, it is up to each state to implement the new program. With the largest bipartisan support of any law so far in this congressional term, all states are expected to comply forthwith.
Michael Smith and Richard Barid are co-founders of Savannah-based Smith Barid LLC, which specializes in estate planning and special needs planning. They are accredited VA attorneys with extensive experience arbitrating denied pension claims. They can be reached at 912-352-3999 or firstname.lastname@example.org or email@example.com.