BY ATTORNEY GARRETT T. SMITH
ABLE Accounts were created through Federal legislation passed in 2014 called the Achieving a Better Life Experience Act (ABLE Act). An ABLE Account is a tax-advantaged savings account for individuals with special needs. The beneficiary of the account is the account owner. Any income earned by an account will not be taxed. Contributions can be made to an account by any person. Contributions will be made with post-taxed dollars and are not tax deductible (federally). Some states, including Utah, allow for state income tax deductions for contributions.
Many individuals with disabilities and their family rely on public benefits for health care, food, income, and housing assistance. Individuals reporting more than $2,000 in cash savings, retirement funds, and/or other items of significant value are ineligible for certain public benefits like SSI, SNAP, Medicaid, etc. The ABLE Act recognizes that there are extra and significant costs associated with living with a disability. Many of the public benefits do not cover all of the health care, personal assistance services, assistive technology, housing, transportation, and other needs to have the desired quality of life.
There are certain eligibility requirements for ABLE Accounts. The onset of the disability must have occurred before the individual reached 26 years of age. If an individual meets this age requirement and is already receiving benefits under SSI and/or SSDI, that individual is automatically eligible to open an ABLE Account. If an individual is not a recipient of benefits under SSI and/or SSDI, but still meets the age of onset of the disability requirement, that individual may be eligible if he or she meets the following requirements: 1) Meet Social Security’s definition and criteria regarding significant functional limitations, and 2) Obtain a letter of certification from a licensed physician.
One disadvantage of an ABLE Account is that upon the death of the beneficiary, the state in which the beneficiary lived may file a claim to all or a portion of the funds within the ABLE Account equal to the amount that the state spent on the beneficiary through the state Medicaid program. This “Medicaid Pay-Back” allows the state to recoup Medicaid related expenses from the time that the ABLE Account was opened.
An ABLE Account should be used to supplement a Special Needs Trust rather than supplant it altogether. The advantages of each provide an individual with special needs, and their family, with more comprehensive tools to manage and protect assets. An ABLE Account provides the individual and family more control and flexibility while a Special Needs Trust avoids the Medicaid Pay-Back and provides greater protection of assets.
This is a complex area of law and small mistakes can have major financial consequences. If you need help navigating these issues, please give me a call!