By Vivian J. Villers, CFP, AIF, CWS
Three options are available to provide additional funds for the support of a child with a disability that do not jeopardize the ability to receive SSI and Medicaid: the Special Needs Trust, the OBRA’93 (“OOPS”) Trust, and lastly, the ABLE Account.
ABLE stands for Achieving a Better Life Experience and was passed by Congress in December of 2014. It is technically a 529 plan, and creates a tax-free account owned by an individual with a disability. The ABLE account is limited to a person whose disability occurred prior to age 26. Similar to the OBRA Trust, the funds can only be used for qualified disability expenses and has a “payback” requirement. When the person with the disability dies, any remaining funds will be used to reimburse Medicaid.
The special needs person is the beneficiary AND owner of the ABLE account. If that individual is a minor, or incapable of managing the account for themselves, then a designated person such as a parent, legal guardian, or the beneficiary’s agent acting under a power of attorney can establish and administer the account. This is called Signature Authority. The person with a disability, however, is always considered the owner and beneficiary of the account.
There can be only one ABLE account and it can be funded by the beneficiary or by family members. The maximum contribution from ALL sources – the account owner, parents, other family members, etc. — is currently $15,000 per year. Contributions are not deductible under Federal rules, but some states may allow a deduction. Funds grow tax-free. Money in the ABLE account does not jeopardize eligibility for government benefits, even though the balance can exceed the usual $2000 limit for SSI and Medicaid. If the ABLE account balance exceeds $100,000, government benefits will be suspended until the balance drops below $100,000.
Most states have an ABLE program, many through a designated bank. Typically, funds can be withdrawn by check or debit card. Some investment companies may also offer an ABLE account. Occasionally, you may choose a program offered by a state other than the one in which you reside. By doing so, however, you would lose your home state’s tax deduction for contributions and a given state may not allow non-resident accounts. An excellent resource to compare state program features and find other information is the ABLE National Resource Center (www.ablenrc.org).
In addition to family contributions, an ABLE account is useful for other deposits. Some possibilities include: unspent earnings or Social Security benefits, an inheritance bequeathed directly to the special needs person, a court award, or lottery winnings. Be careful that the TOTAL amount of all contributions from all sources do not exceed the $15,000 limit per year.
In conclusion, ABLE accounts can be an inexpensive solution for small amounts originally owned by the person with a disability or family contributions. They provide easy access to funds by the special needs person. They can stand alone or be an addition to OBRA Trust funds.
Vivian J. Villers is a long-time Sigma Financial Corporation representative. For over 20 years, she has provided financial planning advice for families and individuals with special needs. Vivian serves on the Board of Directors of The Arc of Illinois and has two family members with disabilities. She is a Certified Financial Planner, focuses much of her practice on special needs, financial planning, and frequently speaks on the topics of both families and professionals.