A new option will soon be available to allow individuals with disabilities to hold assets without disqualifying the individual from receiving benefits and without establishing a Trust. Last December, the Achieving a Better Life Experience Act (the ABLE Act) became federal law. The ABLE Act authorizes savings accounts that will not disqualify the beneficiary from eligibility for government benefits, provided that certain requirements are met. The earnings of these accounts, which are similar to 529 accounts used for education savings, will not subject to income tax, provided that distributions are used for the beneficiary's qualified disability expenses.
Eligible individuals must be entitled to government benefits based on blindness or disability under the Social Security Act or a disability certification must be filed with the IRS with respect to the individual. The certification must state that the individual 'œhas a medically determinable physical or mental impairment which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or is blind.' The disability or blindness must have occurred before the age of 26.
The annual aggregate contributions from all donors may not exceed the annual gift tax exclusion, currently $14,000. The total value of an ABLE account may not exceed the state's limit for 529 accounts, currently $375,000 in New Hampshire. Assets in the account are considered a non-countable resource and qualified distributions are not income for purposes of determining eligibility for benefits. However, for purposes of Supplemental Security Income (SSI) the total in the account will need to be less than $100,000 for the account to be disregarded.
Distributions from the account may be made for 'œqualified disability expenses' which include education, housing, transportation, employment training, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, funeral and burial expenses.
When the beneficiary of an ABLE Act account dies, the assets remaining in the account must be used to pay back the government for benefits received by the beneficiary after the ABLE Act account was established. This is similar to the rule for self-settled special needs trust, which require repayment to the government when the beneficiary dies.
Depending of the circumstance a special needs trust may still be needed, however, ABLE Act accounts are a welcome alternative to irrevocable special needs trusts or pooled trusts which formerly were the only shelters available to hold assets for special needs beneficiaries in a manner that will not cause disqualification from benefits.
We are early in the game with ABLE Act accounts. States are working to establish laws that will facilitate ABLE accounts. Legislation is currently pending in New Hampshire (Senate Bill 265-FN) which would authorize New Hampshire banks to set up ABLE Act accounts. Stay tuned for more about ABLE Act accounts in New Hampshire. We will keep you updated as the situation develops.