What Is an ABLE Account?
The Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act was signed into law in 2014, and is aimed at easing the financial burden that individuals with disabilities face.
ABLE accounts allow people with disabilities that began before age 26 to save and invest private funds without losing eligibility for essential federal government benefits programs, such as Supplemental Security Income (SSI), Medicaid, and housing benefits.
Earnings and withdrawals on ABLE accounts are tax-free, if used for qualified disability-related expenses.
Who is eligible to open an ABLE Account?
Individuals with disabilities must meet the following requirements to open an ABLE account:
- An individual has a disability that began before the age of 26; and
- One of the following is true:
- The individual is eligible for SSI or SSDI because of disability;
- The individual is blind as determined by the Social Security Act, or
- The individual has a similar severe disability with a written diagnosis from a licensed physician.
What constitutes a qualified disability expense?
A qualified disability expense is any expense that a disabled individual incurs as a result of the disability and is intended to improve the individual’s quality of life. Such expenses include but are not limited to:
- Health and Wellness
- Funeral/Burial expenses
- Legal Fees
- Financial management
If non-qualified disability expenses are spent out of the ABLE account, they will be treated as income and subject to taxes and penalties.
Will having an ABLE account disqualify the account holder from public benefits?
ABLE accounts are designed to provide individuals with disabilities a tax-free savings option which will not interfere with the individual’s eligibility for governments assistance such as Medicaid and SSI.
ABLE account savings are exempt from the SSI resource limit up to $100,000. When the balance exceeds that, SSI benefits are suspended until the account balance goes below $100,000. An individual will continue to be eligible for Medicaid, regardless of your account balance.
What is the difference between a Special Needs Trust vs an ABLE account?
An ABLE account can be established and managed by the disabled person if they have the capacity to do so. If they do not, a parent, conservator or guardian, or agent under a power of attorney may establish and manage the account. ABLE programs are managed at the state level, and North Carolina’s program is managed by the North Carolina Department of State Treasurer. The program establishes investment options to which account holders have access.
If an ABLE account beneficiary receives Medicaid benefits, and dies with assets in the ABLE account, the state Medicaid agency may claim reimbursement against the assets in the account, even if those assets were contributions by third parties.
Like an ABLE account, a special needs trust (SNT) may be established by the disabled individual, parent or grandparent, conservator or guardian, or agent under a power of attorney.
Unlike ABLE accounts, one individual can be a beneficiary of multiple SNTs, and there are no limits on the assets each can hold. The trustee may spend the funds for anything, other than housing or food, that benefits only the beneficiary. These disbursements will not jeopardize the beneficiary’s government benefits.
As with ABLE accounts, the state Medicaid agency may claim reimbursement against the assets in a Special Needs Trust established with the funds of the disabled individual. However, unlike ABLE accounts, a claim for reimbursement cannot be made against the assets in a Special Needs Trust established with the contributions of third parties.
ABLE accounts are generally considered to be a beneficial supplement to a Special Needs Trust and not a substitute for one. While this article provides a brief overview of the accounts, it does not set forth all of the eligibility requirements or tax consequences of the accounts. Our attorneys can look at your individual circumstances, provide you with detailed information, and help you decide if an ABLE account should be included in planning for your disabled love one.