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What Are ABLE Accounts?

Posted by Daniel J. Eccher Esq. | Apr 08, 2020 | 0 Comments

Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014. This created tax advantaged accounts for people with disabilities. These accounts grow tax free. The money in the accounts can be used for qualifyied expenses. Before the passing of the ABLE Act in 2014, if a person with disabilities had more than $2,000 in their name, they would lose Medicaid coverage or Supplemental Security Income (SSI). ABLE accounts allow people with disabilities to have more than the $2,000 in their name within the guidelines without losing these benefits.

In order to qualify for an ABLE account, the beneficiary must have become blind or disabled before the age of 26. When opening an account, a person with disabilities may or may not be asked to provide documentation if they are not already receiving Medicaid coverage or SSI. In order to self-certify, the person with the disability will just need documentation from the doctor. Those already receiving Medicaid coverage or SSI should not have to provide documentation in order to open an account.

ABLE accounts have a per year contribution limit of $14,000 per year. This limit keeps gifts to these accounts from incurring gift tax liability. ABLE accounts cannot grow above $100,000 without affecting other benefits. If the account grows above $100,000, Social Security payments are suspended until the account falls below the $100,000. These accounts are administered at the state level, but that does not mean that the account must be acquired in the home state. It is beneficial to investigate and find the account that best fits the needs of the disabled person. Fees are one consideration. Another is how the funds are accessed. If immediate access is necessary, an account that offers a debit card option may be important. This option is something that must be explored individually. An elder law attorney and financial planner can be helpful in deciding which state plan best meets an individual's needs. 

Funds in the ABLE account can, according to the ABLE Act, be used for “qualified disability expenses.” It defines qualified disability expenses as “expenses related to the eligible individual's blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.” ABLE accounts can be used to pay for housing, transportation, assistive technology, support services, health, prevention and wellness, employment training, education, funeral and burial expenses, among others. It is important for a disabled person to speak with an expert, in order to take advantage of the full benefit of the account, as many people may be unaware of expenses the account can cover.

It is recommended that receipts and records for the expenses paid for with an ABLE account are kept as a record for the account. The IRS is responsible for regulating the accounts. Having records of the expenses is very helpful in case of an audit. It may also be beneficial to keep a record of how each expense is related to the disability. Taking these measures will provide documentation if any expense covered by the ABLE account is ever questioned or if the account is audited. 

ABLE accounts can benefit many Americans with disabilities. Many people continue to choose special needs trusts (SNT) and other financial options. For those who can afford both, this option may be worth considering. The benefits of one may outweigh those of the other. One advantage of an ABLE account is that it offers the person with a disability the freedom of having significant control over the money in the account, unlike with a SNT, which is controlled by a trustee. ABLE accounts are just one tool for those planning for the future of people with disabilities. 

If you have questions or need guidance in your planning or planning for a loved one, please do not hesitate to contact our Winthrop office by calling us at (207) 377-6966.

About the Author

Daniel J. Eccher Esq.

Daniel J. Eccher, Esq. is the Managing Shareholder at Levey, Wagley, Putman & Eccher, P.A., in Winthrop, Maine. Dan's favorite problem to solve is helping clients figure out how to afford long-term care while having something left for their family.

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