The Achieving a Better Life Experience Act, or ABLE Act, signed into law in 2014, will soon be launched in Massachusetts. When available, individuals with disabilities that began prior to the age of 26 will be able to open special savings accounts in which they can save money. These accounts will be similar to section 529 education accounts in that they will be used to save money tax-free. The funds contributed to the account is post-tax, but all qualified distributions will be tax-free. Account values, up to $100,000, will be disregarded in determining eligibility for means-tested government programs such as supplemental security income (SSI). Contributions, however, are limited to $14,000 per year from any source.
Although the ABLE account is a positive planning tool individuals with disabilities, there are some limitations that you need to consider. First, Congress limited annual contributions to $14,000 total. Second, unlike third party special needs trusts, there is a Medicaid payback provision for benefits paid out on behalf of a beneficiary.
Even with these limitations, there are several scenarios where an ABLE account can be used to benefit families. First, disabled adults that are working can use the account to shelter the earnings that may push them above the SSI asset limit of $2,000. Even better, unlike a pooled special needs trust account, the disabled individual can control the account themselves. Second, ABLE accounts may be useful to families who want to gift small amounts and do not want to incur the costs of establishing a special needs trust. Just keep in mind, there is a Medicaid payback provision with ABLE accounts, so you must do a cost-benefit analysis to determine whether it is more cost effective to set up an ABLE account or special needs trust.
ABLE accounts, if used properly, will be a very useful planning tool for families. As with any estate planning, a thorough analysis must be done to determine what planning strategies should be used, including ABLE accounts.
Chris is a member of the Center’s Advisory Board. Chris was born and raised in Worcester, Massachusetts. He received his Master’s degree from Anna Maria College, his law degree from New England Law in Boston, and is a member of the Massachusetts bar. His practice is focused on estate and Medicaid planning, asset protection and special needs planning. Chris also founded Assure Wealth Strategies, LLC, a registered investment advisory firm to better serve his existing clients. With his 10 years in the estate planning, asset protection and long-term care planning areas, he sought to take a more comprehensive approach to financial and estate planning. Assure Wealth Strategies helps families plan for the financial needs of a loved one with special needs while preparing for their own retirement. Chris also has a personal connection to this area, his son was diagnosed with autism at age 2. Chris and his wife, Jennifer, live in Oxford with their daughter Peyton, and sons Nolan and Declan.