The “Achieving a Better Life Experience” Act (ABLE Act) was signed into law in December 2014. The ABLE Act allows the creation of accounts for people who became disabled before the age of 26. These accounts will help them (or their families or guardians) manage some of the money for their needs in an easy way.
A person disabled before the age of 26 may have an ABLE account. The person can have only one such account. Anyone can deposit money into the account, though. Total deposits cannot exceed $14,000 per year (like the gift tax exclusion,) and this cap is likely to go up every few years. The account will not be taxed (except in certain circumstances.) Perhaps most importantly, the account will not prevent the disabled person’s eligibility for Social Security benefits or Medicaid benefits.
Money from the account can be used for education, and/or medical prevention and wellness services. (Expenditures from a special needs trust for such services effectively reduce government benefits, but these expenditures from an ABLE account should not impact government benefits.) In addition, the ABLE account can pay for transportation, assistive technologies, personal support services, financial management and administration, oversight, monitoring, funeral and burial expenses, and (my personal favorite) legal fees.
HERE’S THE CATCH: The contents of the account when the disabled person dies must be paid to Medicaid as a payback for services Medicaid has provided during the disabled person’s lifetime.
To minimize the sting of the payback rule, DON’T OVERFUND THE ABLE ACCOUNT.
If the disabled person has his or her own money that is preventing the availability of Social Security (that would be Supplemental Security Income) or Medicaid, then some of the disabled person’s money can be placed in an ABLE account to get them closer to financial eligibility. The disabled person’s money is subject to a payback requirement anyway, so moving some money into an ABLE account doesn’t change the payback requirement. But, moving the money into the account can help make government benefits available, a huge benefit to the disabled person.
Also, if the disabled person has a Special Needs Trust or an account inside a pooled trust that was set up from his or her own money, don’t rush to empty the trust into the ABLE account. Some expenditures will probably be easier from the ABLE account, but other expenditures may be easier from a trust. This ABLE account is so new that no one should “put all their eggs” into this one basket. Let the practical use of these accounts shake out a bit before relying too much on them. (My mixed metaphors of eggs and shaking has me craving an omelet.)
Deposits into the ABLE account of (other than the disabled person) should be done in moderation. Remember, money that has never belonged to the disabled person isn’t subject to a payback requirement.
The ABLE account can be a convenient way to manage money. Just don’t overuse it.
Also, the ABLE act allows states to decide for themselves whether to allow these accounts for their residents. I don’t yet know whether Ohio (where I practice) has decided. Until your state decides to accept ABLE accounts, none of today’s discussion might matter to you.