“A Plan to Help the Disabled Help Themselves”
Disabled individuals are frequently dependent on public benefits. Medicaid exists to help with health care expenses while Supplemental Social Security benefits help with other costs of living such as housing, food, support, and transportation, among other things.
The average income provided from Supplemental Social Security benefits is less than $800 per month. To qualify for these benefits, recipients cannot own personal assets in excess of $2,000. This means that these individuals will not have a savings account or emergency fund greater than $2,000.
Congress passed the “Achieving a Better Life Experience Act”, known as ABLE, to ensure that disabled individuals can enjoy a better life. The ABLE Act effectively changed the $2,000 limit for many disabled persons by creating the ABLE account (a tax advantaged savings account for individuals with disabilities also called a 529A plan).
An ABLE account can receive deposits of up to $14,000 annually.
Access to the benefits of an ABLE account is available to disabled persons of any age whose disability began prior to their 26th birthday.
Until the passage of the ABLE act, and the creation of ABLE accounts, all funds accepted by, or used for, the disabled person would have to be reported as income and would reduce the monthly Supplemental Social Security payment. They would also jeopardize the disabled person’s eligibility for Medicaid benefits. Now, under the ABLE account, payments made for the benefit of the disabled person do not count as income to the beneficiary.
Under the Act, a qualified disabled individual is limited to one ABLE account. Contributions into the account and its subsequent investment growth are allowed to increase the total asset balance of the account, but if the balance of the account exceeds $100,000, distributions from the account will be considered income and would, therefore, affect the disabled person’s eligibility for future Supplemental Social Security payments and Medicaid.
The maximum lifetime contribution that can be made to an ABLE account during the lifetime of the qualified disabled person is $500,000. Any residual balance remaining in the ABLE account at the death of the disabled person is subject to the Medicaid payback provisions which require that any residual assets will be used to reimburse the Medicaid program for the cost of services provided to the disabled person during their lifetime.
The ABLE account is similar to the 529 Education Savings account, and each state can establish and monitor its own ABLE/529A program. Washington State is currently in development of the ABLE program, but residents need not wait. Many states that have developed 529A plans invite nonresidents to invest in their plans.
You may contact a local investment advisor or search the internet for the ABLE plan in the state you are interested in. Ohio has established a popular plan. Other states offering open national enrollment are Tennessee and Nebraska. Florida offers accounts for Florida residents only.
Until the establishment of the ABLE account, the primary means for establishing a fund for the benefit of a disabled person was through an Irrevocable Special Needs Trust or a Pooled Trust Account. The ABLE account will meet a different need. While Special Needs Trusts and Pooled Trusts are created for the benefit of the disabled person, they are controlled by a Trustee and used to purchase goods and services for the disabled person. These Trusts are more costly to create, but they can hold larger assets.
In contrast, the ABLE account is owned and controlled by the disabled person for the benefit of the disabled person. A major benefit of the ABLE account is that use of the funds for the benefit of the disabled person does not count as income to him/her for purposes of qualifying for Social Security or Medicaid benefits, and like a 529 Education Plan account, the ABLE/529A account’s assets grow tax free.
Article submitted by: Richard C. Tizzano, Elder Law Attorney
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