Traditional Special Need Planning has focused on the establishment and funding of Special Needs Trusts. Since 2014, families and friends can establish ABLE accounts as an additional vehicle for tax efficient savings for individuals with disabilities. Although ABLE accounts can be set up using any state's program, twenty-one states have established programs, including Florida, Kentucky, Michigan, Nevada, Ohio and Tennessee, states where Dickinson Wright provides services to clients.
What is an ABLE account? It is an account established for an individual who is blind or whose disability began before the age of 26.The individual with disabilities is the owner of the account. The total annual contribution to the account is limited to $15,000. Each individual with disabilities may own one account with a maximum amount of One Hundred Thousand Dollars before impacting an individual's eligibility for SSI cash benefits.
What is the advantage of an ABLE account? The earnings on the ABLE account assets are tax free, regardless of whether they are distributed. It is the equivalent of a 529 account for individuals with disabilities.
What can be paid from an ABLE account? Qualified disability expenses are any expense related to the designated beneficiary as a result of living a life with disabilities and which can improve the health, independence or quality of life.
Funds left in an ABLE account after the owner's death are subject to Medicaid clawback.
What are the advantages of an ABLE account? First, so long as it is below the One Hundred Thousand Dollar amount, ABLE Account assets are discounted for purposes of determining eligibility for means testing of public benefits. By contrast, individuals with disabilities are limited to owning a maximum of $2,000 in assets in their own name before disqualification happens. Second, families and individuals with disabilities can have more control over these more flexible accounts with lower administrative costs. It is easier to open an account, contribute funds, and maintain an account without the expense of the drafting and administrative costs of a special needs trust. Some state's programs even allow debit cards for purchases. Administrative costs are minimal. Nevada's ABLE account program, for example, has an annual fee of $45.00, $60.00 if you want paper statements.
The Tax Cuts and Jobs Act of 2017 now permits tax-free rollovers of funds of a maximum of $15,000 between 529 accounts and ABLE accounts for the benefit of the same individual with disabilities or a family member of that same individual.
ABLE accounts are a viable planning opportunity for all families of individuals with disabilities, whether as an affordable alternative for moderate amounts or as an addition to the traditional planning package.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.