The ABLE Act was signed into law by President Obama during the holiday break. I believe
the ABLE Act is a tool for individuals with developmental disabilities but there are many
options that need to be consider when planning for an individual with special needs.
With that in mind, I asked Brian Rubin of Rubin Law an expert in Special Needs Legal &
Future Planning to share his expertise on the ABLE Act. Brian is also the President of The
Arc of Illinois.
The following is an excellent summary from Brian.
Thank you Brian!
Lastly, I would advise that all individuals considering special needs legal and future
planning that they work only with professionals with background and experience in this very
specialized field.
Tony
The ABLE Act… What is it? It is a “Medicaid Pay Back Account”.
With overwhelming support, Congress has passed the ABLE Act of 2014 (Achieving a Better Life Experience), providing an opportunity for qualified individuals with special
needs to have a tax-free savings account that will support their healthand independence while preserving their means-tested government benefits. On December 3, 2014 the House passedABLE on a vote of 404-17. It was then merged with the Tax
Increase Prevention Act of 2014 (H.R. 5771), which also passed the House and on
December 16, 2014 was approved by the Senate on a vote of 76 to 16. President Obama
signed the legislation into law.
Some individuals with special needs, but not all, could benefit from an ABLE account. We
are available to make presentations to groups and organizations to explain how and when
an ABLE Account can be useful, in addition to, and not in lieu of other required special
needs planning.
Beginning in 2015 under the federal ABLE Act, states may, but are not required to, choose
to develop programs enablingpersons with disabilities to establish accounts modeled on
the popular 529 college savings plans. Certain balances and disbursements will not be
considered when establishing an individual’s eligibility for such means-tested government
benefits as Medicaid and Supplemental Security Income (SSI). Funds can be used for approved healthcare, education,housing, personal support and other care
expenses. The first $100,000 in an ABLE account will not adversely affect the individual’s
eligibility for SSI.
To qualify, the onset of the individual’s disability must have occurred prior to the age of 26. Only one ABLE account maybe established for each qualified person with special needs.
Total annual contributions cannot exceed the federal gift taxlimit ($14,000 as of 2015), while
total contributions from all contributors to the one account are capped at the limit established
by each state for its 529 accounts (In Illinois $350,000). Although contributions are not tax-
deductible, income earned by such accounts will not be taxed. Funds remaining in the
account at the beneficiary’s death (even funds contributed by parents, grandparents and
siblings) must first be used to repay Medicaid expenses incurred.
So will an ABLE Act account be of benefit to you or your family member with special needs?
Maybe, just maybe. Consider the following:
An ABLE Account is limited on how you can spend the money in the account, far more
limited than a Special Needs Trust!
The ABLE Act limits how much can be contributed annually (Only $14,000 from all
sources) to the one and only one allowable ABLE Account, unlike Special Needs
Trusts which have no limits on contributions & can have multiple Trusts & Accounts.
An ABLE Account, again, must “pay back” (reimburse) the State(s) when the beneficiary
dies, for all that the State(s) paid (Medicaid, Medicaid Waiver programs, etc.) after the
date the ABLE Account was created, even from funds contributed by parents,
grandparents and others, unlike a 3rd party Special Needs Trust which has no pay back!
If the amount in the ABLE Account (again, can only have one account) for a beneficiary,
exceeds $100,000, then the beneficiary will lose their SSI. Not the case with either a
3rd party or 1st party SNT that can have unlimited amounts!
If there is a Guardianship, & the beneficiary’s funds are going to be “saved” in an ABLE
Account, then, in the State of Illinois, court approval is required to establish the ABLE
Account; in many counties court approval of all ABLE Account expenditures will be
required; there will be required notice to, & approval of the State of Illinois, of all
expenditures; there will be an additional cost of a required annual surety bond. None of
which would be necessary for third party contributions when using a 3rd party Special
Needs Trust.
ABLE Accounts are “tax free”. In truth, this is an “illusionary benefit” (i.e. the “tax free
nature of these accounts”).
A 3rd party Special Needs Trust, if drafted as a Qualified Disability Trust (QDT),
has a full $4,000 exemption in 2015, All distributions from the Trust for the benefit
of the beneficiary are taxed to the beneficiary, & the beneficiary could have their
own exemption, of $4,000, & a standard deduction in 2015 of $6,300. Therefore
, with a 3rd party QDT Special Needs Trust you may be able to shelter from
income tax in 2015 $14,300. An ABLE Account with $100,000 (maximum not to
lose SSI) would need to earn over 14% for any income tax benefit over a 3rd party
Special Needs Trust. But with the ABLE Account, there would be a needless pay
back to the state(s) on third party contributions, & limitations on the expenditures.
Further investments can easily be selected which produce no, or minimal federal
taxable income.
For a 1st party “pay-back” Special Needs Trust, all income is taxed to the
beneficiary, not to the Trust. Again, the beneficiary could have a $4,000 exemption
& $6,300 standard deduction. Therefore, no federal tax anyway until the income
exceeds $10,300, and, then at the lowest tax bracket (10% on next $9,225). So,
again, $100,000 in ABLE Accounts is not producing any income tax benefit, and
has more limited uses of the funds in the accounts than a 1st party special needs
trust!
7. In Illinois the maximum that can be in an ABLE Account for a beneficiary is $350,000
(the same as for college 529 plans) or will lose Medicaid. There is no limit for Special
Needs Trusts!
8. If the amount in the ABLE ACCOUNT exceeds $100,000, even for one day, the
individual loses SSI, unlike for a Special Needs Trust! SSI amount in 2015 is $733 a
month, $8,796 annually, and already is income tax free dollars.
9. If the age of the “disability” onset is age 26 or older, you cannot use an ABLE
Account. So many with a mental illness diagnosis, or traumatic brain injury, if it cannot be
documented that the onset was prior to age 26, cannot use ABLE Accounts!
When does ABLE make sense? Consider: The individual received an inheritance of less than
$14,000, not correctly left to a 3rd party Special Needs Trust; The individual received a
“Litigation Settlement” of less than $14,000; The individual has unspent SSI/SSDI/Earnings
that will push the individual’s resources over the allowable amount.
However, remember, in one year can only add to the account (only one account allowed) in
total, from all contributors $14,000!
Also consider as a better alternative Illinois’ HBWD (Health Benefits for Workers with
Disabilities) in some situations for someone working… If the individual is working, is on SSDI,
not on SSI, & only Medicaid is the issue, under HBWD the individual can have up to $25,000
in assets, & unlimited qualified plan benefits… not limited to ABLE’s $14,000 a year… and no
restrictions on use as ABLE has.
ABLE is definitely another “tool” to consider, but only makes sense in very few situations.
Tony Paulauski Executive Director
The Arc of Illinois
20901 S. LaGrange Rd. Suite 209
Frankfort, IL 60423
815-464-1832 (OFFICE)
815-464-1832 (CELL)
Tony@www.thearcofil.org
