ABLE Account

ABLE Accounts for People with Special Needs

Posted on February 9, 2017 by Jim Koewler — No Comments ↓

ABLE Accounts seem to be here to stay.

ABLE stands for Achieving a Better Life Experience. ABLE Accounts are financial accounts through which someone with special needs can spend money for many things that will enhance the person’s quality of life.

In Ohio, where I practice, they are called STABLE accounts. The ST stands for State Treasurer. (A politician can’t help but put his/her name on something.) Oddly, Ohio is one of the leaders in the U.S. in making ABLE accounts available. Ohio is the first state to make them available

These accounts are “special” accounts for people who have disabilities. They receive favorable tax treatment and will not (in most instances) impact the person’s government income (SSI) and health (Medicaid) benefits. In exchange for the tax treatment and lack of impact on government benefits, these accounts will have a number of limitations, so the politicians’ words “enhance the quality of life” and the “better life experience” are bits of puffery.

To be sure, ABLE Accounts will be useful. In fact, there is one particular use of these accounts that is quite a big step forward. Still, despite the highfalutin words of Congress, an ABLE account is not a panacea.

I’ve discussed ABLE accounts before. The February 2, 2015 installment described the federal legislation that created the ABLE account. The April 17, 2015 installment discussed how an ABLE account can be used to help qualify for SSI (Supplemental Security Income) and for Medicaid.

THE BASICS

The person who owns the ABLE account must be disabled or have been disabled before age 26. There is talk of raising the age, but nothing has happened yet.

The person can have only one ABLE account. Not one per state per person – only one per person, nationwide.

Anyone can contribute to an ABLE account. The total of ALL contributions cannot exceed $14,000 per year. This number is pegged to the amount of a gift that does not trigger the requirement to file a gift tax return. As the gift tax exclusion goes up with inflation, so will the ABLE account maximum contribution amount. Unlike the gift tax exclusion, however, the ABLE account deposit isn’t on a per person basis. The maximum is per account per year, not per donor to the account. For example, if Dad deposits $14,000 into child’s ABLE account in January 2017, no one can give anything more to the account until 2018. Deposits are NOT tax deductible, though.

If an ABLE account holds more than $100,000, SSI will be shut off until the value falls back below $100,000. Medicaid will not be shut off, though. With a maximum contribution of $14,000 (unless interest rates really jump or the stock market takes off,) it will be seven years before any ABLE account gets to that amount.

Whatever is left in the ABLE account when the person dies will go to pay Medicaid first (up to the amount that Medicaid spent on the person.) If the person relies on Medicaid for health costs, he/she should not allow the ABLE account to accumulate.

Money in a ABLE account can grow tax-free. (It’s sort of like a Roth IRA that way. The initial deposit isn’t pre-tax money, but the growth of the money in the account is tax-favored.) In fact, if the contents of the ABLE account are spent on disability-related expenses, the growth isn’t taxed. If, though, ABLE funds are used to pay some expense that is NOT disability-related, there’s a 10% penalty on that expenditure. It’s important to take great care when spending ABLE funds.

Ohio’s STABLE account can be invested in mutual funds or in a checking account. There are different mutual fund choices to allow for aggressive investors or cautious investors. (Remember that the ABLE account is a Medicaid-payback account, so these mutual fund options are attractive only to someone who is sure that he/she will NOT rely on Medicaid for care. I suspect that only a few people who are eligible to open ABLE accounts can fairly expect not to use Medicaid.) Because of the likelihood that many or even most people may come to depend on Medicaid during their lifetimes (becuase of the likelihood of people needing long term care,) I cannot stress how bad an idea it seems to allow an ABLE account to accumulate above one’s near-term needs. (Use, if possible, a Wholly Discretionary Trust if trying to allow accumulation of the money.

An ABLE Account is going to be almost as easy to use as a checking account. It can have a debit card as well. Because expenditures from the ABLE account lose their protection if not made for “disability related expenses,” avoid the debit card. The debit card is a mistake waiting to happen.

THE MOST IMPORTANT USE OF AN ABLE ACCOUNT

An ABLE account can be used to pay for housing.

That may not seem important, but it is.

Supplemental Security Income (SSI) is the source of income for a great number of people who are disabled before age 26 (the age by which someone must be disabled to qualified for an ABLE account.) An SSI recipient over age 18 can have his/her payments be reduced if the recipient receives help paying for housing. That reduction can be up to a third of the SSI payment that the person could otherwise receive.

People who are disabled as children tend to live with Mom and Dad for most or all of their lives. Mom and Dad may be well to do, living in an expensive house. The fair market rent to live in an expensive house can easily exceed one third of the maximum SSI payment, $245. (The maximum SSI payment for 2017 is $735.) For that matter, the fair market rent to live in an expensive house can easily exceed the entire SSI maximum of $735. The SSI recipient doesn’t have enough SSI income to pay fair market rent, so the SSI payment gets reduced.

Mom and Dad (or anyone else, for that matter) can place enough money into an ABLE account (as long as the total deposits during the year don’t exceed $14,000) to allow the child to pay his/her fair share of the monthly cost of the house. Then, the child/ABLE account beneficiary pays money out of the ABLE account to pay Mom and Dad for housing.

(Having the disabled person pay fair share of housing avoids tax issues while payment of “rent” runs into those tax issues. Receiving reimbursement for the fair share of housing doesn’t create income. Receiving rent creates income. That rental income can be offset by the cost of keeping up the house, but it still creates a great deal of tax recordkeeping. Collecting only the fair share of costs doesn’t create an income tax issue as long as documentation of the total cost is checked occasionally and the fair share gets adjusted when someone moves out of the house, such as a sibling moving out for college. Despite the ease of the fair share method, when calculating an SSI reduction, the Social Security Administration uses the fair market value approach.)

There are plenty of other disability-related expense that are eligible to be paid by a Wholly Discretionary. An ABLE account’s ability to pay for housing and remove the possible loss of SSI income is, in my mind, the single best use of an ABLE account.

The ABLE Account and Qualifying for SSI and Medicaid

Posted on April 17, 2015 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about Special Needs Law. The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs. The blog post on February 5, 2015 discussed hidden problems with the new ABLE accounts. The blog post on February 26, 2015 discussed sources of income for people with special needs. The blog post on March 5, 2015 discussed medical insurance for people with special needs. The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.) The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income. The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid. The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny. The blog post on April 9, 2015 discussed how a Pooled Trust can help shelter excess resources from SSI and Medicaid scrutiny.

Today’s post discusses how an ABLE (Achieving a Better Life Experience) account can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.

I first discussed ABLE accounts in my blog post of February 4, 2015 shortly after the law creating them was passed. That blog post focused on the need to control the amount of money that goes into an ABLE account from other people, like the parents or grandparents of the person with special needs, for example (so-called “third-party money.”) Today’s blog post will focus on the usefulness of an ABLE account as a place to put first-party money (, money that belongs to the person with special needs.)

NOTE: ABLE accounts are not yet available. The necessary law has passed Congress and received President Obama’s signature. The U.S. Treasury Department must still issue implementing regulations, and the various states must approve them in each state. (The state’s do most of the work on Medicaid, so their cooperation on the interface between ABLE accounts and Medicaid is necessary.) Despite their not being available at this time, I am discussing ABLE accounts this week because, for editorial purposes, this topic fits in with the series currently underway about qualifying for SSI and Medicaid for people with special needs.

For purposes of placing “excess money” somewhere that it won’t make a person with special needs too “rich” to receive Supplemental Security Income (SSI) and/or Medicaid for long term care, an ABLE account has the same effect as a stand-alone Special Needs Trust (discussed in the blog post of April 2, 2015) and a Pooled Trust (discussed in the blog post of April 9, 2015.)

A person with special needs who has excess resources will be able to place assets into an ABLE account without being penalized by the Social Security Administration or Medicaid for giving away assets. An ABLE account can only received $14,000 in any one year. A person with special needs who has limited assets may need only to make an ABLE account deposit to remove excess resources from being counted against them for SSI and Medicaid eligibility. For someone with more assets, an ABLE account may be part of the plan but probably not the only answer. (A person can have only one ABLE account, so there’s no gaming the system to protect more money by creating multiple accounts.)

BIG LIMITATION: Under the recently passed law, ABLE accounts are available only to people with special needs whose disability started before the age of 26.

Background: To understand the importance of ABLE accounts, just like the importance of individual Special Needs Trusts and Pooled Trusts, one must remember how Social Security and Medicaid treat someone who has given away money to become financially eligible. (If you read my blogs every week, this next part will seem very repetitive because the background info is the same for individual Special Needs Trusts, Pooled Trusts, and ABLE accounts. I am repeating it here because I don’t want a first time reader or someone looking at this blog in the archive to have to go find the background reasoning in a prior installment. Also, if you read my blog every week, you must have insomnia badly.)

As we’ve discussed in prior installments, both the Supplemental Security Income program (the Social Security program for people who are disabled but don’t have sufficient work history to qualify for Social Security Disability Income) and the Medicaid program (health insurance for poor people) are “means tested.” Accordingly, people who have the financial means to pay for themselves are not eligible for SSI or Medicaid. Because, for many people. there is a very high emotional cost (and sometimes a care cost) in allowing all of their life savings to be spent away, people look for a way to protect some of their assets while still qualifying for SSI and Medicaid. Giving money (or other assets) to a relative, a trusted friend, or a trust helps protect the assets given away, but the gifts can make the applicant ineligible for SSI and Medicaid or trigger limited Medicaid coverage for a time.

That ineligibility for, or restrictions on, SSI and/or Medicaid would create a problem for many people with special needs. They often need the SSI income and the Medicaid health insurance right away. At the same time, they want the ability to get some personal items or entertainment that they wouldn’t be able to afford if all they had were SSI income and Medicaid coverage, so they would like to find a way to “keep” some of their savings.

An ABLE account, like a Special Needs Trust or a Pooled Trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets. Someone who needs SSI and Medicaid but who has too much money to qualify can put up to $14,000 of the excess money into an ABLE account without getting a penalty of ineligibility or restricted coverage.

The differences between an ABLE account (as I expect or hope them to be implemented) and an individual Special Needs Trust or a Pooled is the apparent ease of use of the ABLE account as compared to the trusts.

Money from an ABLE account can be used for education, and/or medical prevention and wellness services. (Expenditures from a stand-alone Special Needs Trust or a Pooled 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 legal fees. So, the contents in an ABLE account cannot be used for as many different types of purchases as the contents of an individual Special Needs Trust or a Pooled Trust.

Also, at least at this point, it’s possible that an ABLE account won’t need a person to act as go-between for the cash in the account and the actual expenditure. ABLE accounts may give the person with special needs more direct control over the assets in the account than the person has over the assets in a Special Needs Trust or a Pooled Trust. The limitations on the types of allowed expenditures may allow some more direct involvement by the account holder (, the person with special needs.) Of course, the implementing regulations might create a go-between mechanism to prevent the account holder’s receipt of cash which could then cause an problem with SSI eligibility for having excess income.

Like an individual Special Needs Trust and a Pooled Trust, an ABLE account has a payback requirement. When the ABLE account holder (the person with special needs) dies, the account must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary up to the amount left in the account. (If the contents of the account are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates. If the Medicaid “debt” is equal to or greater than the ABLE account balance, then Medicaid gets it all.) If the account holder uses the entire contents of his or her ABLE account, then Medicaid gets nothing. That’s okay. The person with special needs was were able to make maximum use of his or her SSI benefits, his or her Medicaid benefits, and his or her own assets.

As mentioned above, an ABLE account can accept up to $14,000 per year. (That amount may go up with inflation just like the gift tax exemption goes up every few years.) For the purpose of having few enough assets to qualify for SSI and Medicaid, the annual limitation isn’t an issue. Someone with special needs is trying to qualify for SSI and Medicaid right now. Once that person qualifies, annual income must be controlled to keep eligibility. That control on income probably prevents the person from accumulating enough money in any later year to make any new deposit into an ABLE account or at least from making a large deposit. Unless someone with special needs has an unexpected influx of money (like an inheritance, or an accident settlement, or a lottery win,) only the initial ABLE account deposit is likely to be important to SSI or Medicaid eligibility.

While an ABLE account can legally accept deposits from anyone (like a parent or grandparent, for example,) the payback requirement creates a disincentive for any deposits of third-party money. (Remember, money that never belonged to the person with special needs isn’t subject to a payback requirement. So, putting any third-party at risk of being paid to Medicaid upon the death of the intended beneficiary seems like a waste of money.)

Also, because the ABLE account will be a bank account or a brokerage/investment account and because of the annual $14,000 limitation on deposits, the ABLE account cannot accept real estate. This is not a place to protect a home for the person with special needs.

In conclusion, if a person with special needs must shed some assets to qualify for SSI or Medicaid, an ABLE account (at least as set up in the law) can help shield a certain amount of money from being counted. The ABLE account may be only part of the asset-protection strategy, but its apparent ease of use may prove valuable for expenditures over many years – in addition to the benefit of helping the account holder achieve SSI and Medicaid eligibility.

ABLE Act accounts are great – In Moderation

Posted on February 5, 2015 by Jim Koewler — No Comments ↓

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.