In December of 2014, the Achieving a Better Life Experience Act, more commonly known as the “ABLE Act” was passed. The ABLE Act permits the establishment of special bank accounts, similar to 529 Plans, for individuals who became disabled prior to attaining the age of 26. The funds in these accounts are not included in the disabled individual’s countable resources for purposes of determining eligibility for means-tested government benefits such as Supplemental Security Income (“SSI”) and Medicaid. ABLE accounts are not expected to be available in New Jersey until the end of 2015.
Initially, the purpose of these accounts was to replace the need to hire an attorney to draft a Special Needs Trust, which many felt were too expensive and too restrictive. However, the bill was not adopted as originally foreseen. As a result, ABLE Act accounts are not going to be the Special Needs Trust alternative many had hoped.
ABLE accounts have very strict rules. A disabled individual is only permitted to have one qualified ABLE account. The account must be funded with cash. The maximum annual contribution limit is $14,000.00. This is not a per person limit like the annual gift exclusion, it is a total contribution limit. If the account exceeds $100,000.00 (which will take at least 7 years of contributing the maximum amount of $14,000.00), the disabled individual will lose their eligibility for SSI. However, their eligibility for Medicaid will continue until the account exceeds their state’s permitted maximum amount for a 529 account. New Jersey’s current maximum is $305,000.00.
Distributions from an ABLE account must be for expenses related to the beneficiary’s disability, including but not limited to transportation, education, housing, employment, adaptive equipment, administrative and legal services, health prevention and wellness, and funeral and burial services. ABLE account holders must be wary when making distributions as there are consequences for distributions that are not permitted. First, impermissible distributions will cause the ABLE account to lose its “exempt” status for Medicaid purposes. Second, impermissible distributions can cause a 10% penalty for income tax purposes.
If there is any money left in the account at the time of the beneficiary’s death, that amount must be used to pay back the government for any benefits received during the beneficiary’s lifetime.
Financial planning for families of individuals with disabilities is complicated. ABLE accounts are just one tool in our tool belt for planning and asset preservation. Come in to see us to determine whether an ABLE account will be a good fit for you and your family.
About the Author: Beth L. Barnhard is an attorney with Meyerson, Fox, Mancinelli & Conte, P.A. in Montvale, New Jersey. A Certified Elder Law Attorney as recognized by the National Elder Law Foundation (NELF), Beth concentrates her practice on representing elder law clients with Medicaid applications and administrative Fair Hearings, asset preservation planning, guardianships, protective arrangements, estate planning, estate administration, and estate litigation.