In December 2014, the Achieving a Better Life Experience (ABLE) Act was signed into law, adding to the toolkit for practitioners advising elderly and disabled clients. The ABLE Act allows contributions to be made to tax-advantaged ABLE Act 529A accounts to pay qualified expenses for disabled individuals.
To date, more than 35 states have adopted ABLE legislation and are working towards implementation as the IRS has encouraged states to quickly establish their ABLE programs. In New York State, Governor Cuomo signed the ABLE legislation at the end of 2015, and the Senate and Assembly are now considering certain amendments suggested by the Governor. It is expected that New York will have ABLE accounts before the end of 2016. Recently, Ohio announced its STABLE program, which will be online shortly and into which deposits will be able to be made from residents of any state.
ABLE accounts now join Special Needs Trusts (SNTs) as valuable planning tools to help elderly and disabled clients achieve financial security. ABLE accounts are similar to the tuition accounts allowed under the IRS Code Section 529, except that they are limited to individuals with a disability that manifested itself before the age of 26. There can only be one ABLE account for a beneficiary, and under current law, the maximum amount that can be deposited into such an account during any year is $14,000, and the maximum amount is the state’s cap for the traditional 529 Plan. The funds can be used for expenses related to the disability of the beneficiary, such as transportation, housing, education, and assistive technology. For a beneficiary receiving Supplemental Security Income (SSI), if the account exceeds $100,000, there will be a suspension of their SSI. There is no effect on benefits under the Medicaid program, even if a beneficiary is also on SSI that is suspended. Upon the death of the beneficiary or termination of the account, there is a payback required for benefits received under the Medicaid program, regardless of whether the funds were deposited by the beneficiary or came from a third party.
Counsel and their clients must also understand the potential tax consequences and impact on a client’s public benefits when establishing an ABLE account or an SNT. One anticipated benefit for future planning purposes is that funds deposited from a third party into an ABLE account and used by the beneficiary for housing purposes will not incur a reduction in SSI benefits, which differs significantly from the results if a third party or an SNT pays these expenses directly for the individual.
More information will be available as New York continues to implement the ABLE program. Contact the experienced and knowledgeable staff of Russo Law Group, P.C. to help plan for your future!
Robert P. Mascali, Esq.
The Center for Special Needs Trust Administration, Inc.