Passed by the Federal Government in December of 2014, the "Achieving a Better Life Experience Act," or ABLE Act is a landmark bill that will affect how disabled individuals and their families manage finances. The ABLE accounts have been compared to 529 education savings accounts for disabled individuals. Each state must adopt their own version of the act, and most state legislatures are currently working to make the ABLE Act a reality.
Prior to the adoption of this Act, saving money for a person with special needs could be difficult and required forming a Special Needs Trust. That is because individuals who receive government benefits must keep their assets titled in their name or for their benefit under a certain amount. Those special needs trusts protect the assets from being a countable resource when determining benefits but they have an expense in setting them up and the money in them could only be used for certain purposes. Per the ABLE Act, so long as the ABLE account balance remains under $100,000, the money in the account will not be counted by the government as an asset of a disabled individual in assessing eligibility for resource-based benefits. And the fee in setting up an ABLE Account will likely cost less (although that remains to be seen). If the ABLE account were to exceed $100,000, SSI would be suspended, though not terminated, but medicaid would remain unaffected.
An ABLE account opened for a disabled individual is less restrictive than a Special Needs Trust in how the funds can be used; most notably, the money in an ABLE account can be used for housing whereas money in a Special Needs Trust cannot without having an effect on benefits. Anyone can contribute to an ABLE account, including the disabled individual. If a disabled individual works and earns money or is the recipient of an inheritance, that money can be invested in an ABLE account and their government benefits can be protected. Earnings on an ABLE account will not be taxed, though contributions to the account are not tax deductions.
This form of saving will not completely replace the Special Needs Trust - it is only available to individuals whose disability occurred before age 26 and does have contribution limits which will be determined by State Legislatures. Further, a big disadvantage is that funds in an ABLE account are subject to medicaid payback, whereas funds in a Third Party Special Needs Trust are not.
Used in conjunction with a Special Needs Trust, an ABLE account will provide an excellent way to protect the needs of your loved ones with disabilities. In most situations, investing in both can maximize your loved one's government benefits while minimizing tax exposure and the potential for paying money back to the government. Take our Special Needs Trusts bootcamps to learn more about them and if they are right for your family.