ABLE Accounts and Special Needs Trusts
by Angela Macey-Cushman
Achieving a Better Life Experience Accounts—better known as ABLE accounts—are an innovative tool for gifting and saving funds while protecting eligibility for critical medical and cash benefits. These accounts do not replace the important role of Special Needs Trusts, but they do offer an alternative for those managing gifts and earnings under $15,000/year, as well as those with larger Special Needs Trusts who would like to provide an additional way for the beneficiary to save and spend money without disrupting benefits like Medicaid and SSI.
What are they and where did they come from?
ABLE accounts are tax-advantaged savings plans, similar to the more familiar 529 Pre-Paid Tuition and College Savings Plans (in fact, ABLE accounts are found under Section 529A of the Internal Revenue Code).
These Accounts were authorized by Congress in 2014, but have been slowly picking up steam as states create their own programs. In the Northwest, Oregon beat Washington to unrolling ABLE Accounts, but Washington residents who enrolled in the Oregon program can convert to the Washington ABLE program. Washington residents setting up new ABLE accounts can work directly with the Washington State ABLE Savings Plan.
With an ABLE account, a person disabled before their 26th birthday can place up to $15,000 each year (from any source) into the account, up to a federal maximum of $100,000 without the funds counting toward the SSI $2000 asset limit. Disabled account holders who are working can also contribute an additional amount equal to the beneficiary’s annual earned income, up to $12,140. The interest growth is tax-free, and the funds are considered exempt assets for purposes of Medicaid and SSI.
What expenses can be paid from an ABLE account?
Funds from ABLE accounts may be used to pay for Qualified Disability Expenditures (QDEs). These are expenses related to the account holder’s disability, for their own benefit. These expenditures may include:
- Care Management
- Financial Assistance
- Basic Living Expenses Related to Disability
- Legal and Accounting Fees
- Disease Prevention
- Assistive Devices
For many disabled ABLE Account holders, the best feature (as compared with traditional Special Needs Trusts) is that they can pay for expenses directly themselves, using a pre-paid card that acts like a normal debit card. In states offering ABLE Accounts with the pre-paid card option (including Washington and Oregon), this gives account holders a degree of freedom and experience with handling their own finances that is strictly limited under Special Needs Trusts.
What if I already have a Special Needs Trust? Do I need an ABLE Account, too?
Many people who are beneficiaries of a Special Needs Trust (also called a Supplemental Needs Trust, or an SNT) will benefit from opening ABLE accounts. Examples include:
- An SNT beneficiary who is employed on the Ticket to Work program
- A Special Needs Trust Trustee who wants to give the Trust’s beneficiary the ability to choose how to spend some of the Trust’s funds
- A disabled person with a third-party SNT, but who has received money for Christmas or as the result of a small inheritance
In each case, an ABLE Account can provide additional support for a disabled person who already has a Special Needs Trust. For those on the Ticket to Work program, earnings can quickly accumulate above the asset limit; opening an ABLE account gives the disabled worker a place to safely accumulate earnings and work toward savings goals. Trustees who want to give SNT beneficiaries more freedom to manage funds may distribute up to $15,000/year out of the Special Needs Trust and into the beneficiary’s ABLE account, giving the beneficiary flexible dollars they can save and spend on their own Qualified Disability Expenses. And for beneficiaries of third-party Special Needs Trusts, an ABLE account provides a way to save gifts they have received, outside of the third-party trust (and not triggering a Medicaid payback on the entire Special Needs Trust).
Are there many restrictions?
Before opening an ABLE account, disabled savers and their families should carefully examine the rules and choose a program with the benefits they need most, such as low fees or a pre-paid card option. They should also keep in mind the critical rules of the program:
- The account holder must have been disabled before their 26th birthday
- No one may have more than one ABLE account without triggering non-exempt asset rules for Medicaid and SSI
- The maximum annual contribution, from all sources, is $15,000 (as of 2021)
- The maximum account total is $100,000
- The funds may only be used for the account holder’s Qualified Disability Expenses
Keep in mind that unlike Third-Party Special Needs Trusts, assets remaining in an ABLE account at the time of the disabled person’s death will be subject Estate Recovery from Medicaid.
Do I need an attorney to open an ABLE account?
ABLE accounts may be opened without the expense of setting up a trust. However, many families considering the ABLE program may also benefit from a consultation with an experienced attorney who can help them decide on the best ways to save while also protecting vital health care and cash benefits. For many families ABLE is just one piece of the puzzle in providing financial security for a disabled family member.
Contact the attorneys at Somers Tamblyn Isenhour Bleck, PLLC if you would like to discuss ABLE Accounts and Special Needs Trusts with a qualified attorney.