ABLE Accounts – A New Special Needs Planning Tool by Bob Murray

On December 19, 2014, President Obama signed into law “The Achieving a Better Life Experience (ABLE) Act,” which allows for qualified individuals to have a tax-free savings account to help meet their disability needs.  On January 11, 2016, Governor Christie signed bills that allowed for qualified individuals to establish ABLE accounts in New Jersey.  Unfortunately, it takes the government time to implement such a program so it is looking like these accounts will not be available in New Jersey until the end of 2016. 
 
I believe that ABLE accounts will become a common planning tool for families with special needs individuals because they allow a family to set up a special savings account for disability-related expenses, without the additional administration and costs of setting up a special needs trust.  This will allow more families access to a savings vehicle to promote the independence of the disabled individual, while maintaining eligibility for Supplemental Security Income (SSI) or Medicaid. 
 
The ABLE account is the offspring of a 529 Account, which allows a tax free savings vehicle for allowable education expenses.  In fact, an Able account is also known as a 529-ABLE Account.  Contributions are made with after-tax dollars up to a maximum of $14,000 per year from all sources, but the growth is tax-free.  Similar to a standard 529 Account, withdrawals must be for qualified expenses otherwise the gains would be subject to income tax and penalties.  An ABLE account may be used for education, housing, transportation, employment training, personal support, health, financial management, legal fees, burial expenses, among others. 
 
In order to qualify for an ABLE account, an individual must have been diagnosed with a disability before the age of 26 AND receiving SSI or SSDI under Title II of the Social Security Act OR has a physical or mental impairment which can be expected to result in death or which has lasted or expected to last for a continuous period of not less than 12 months or is blind AND provides documentation of the diagnosis signed by a physician.  Only one ABLE account can be established for a qualified beneficiary. 
 
An individual’s ABLE Account can have up to $100,000 that does not count toward the SSI or Medicaid Resource Limit of $2,000.  If the account exceeds $100,000, the individual would no longer be eligible for SSI; however, he or she would not lose Medicaid coverage. 
 
ABLE accounts will be a useful planning tool in conjunction with Special Needs and Supplemental Needs Trusts; however, they will not negate the need for estate planning specifically tailored for special needs individuals.  I highly recommend anyone who may have a family member with special needs to speak with an experienced special needs attorney to find out if establishing an ABLE account makes sense for their individual situation. 
 
​