Estate PlanninG

The Able Act

The ABLE Act – Achieving a Better Life Experience –was enacted by the federal government in late 2014. This Act’s purpose is to provide a means for special needs individuals to save money without losing any needs based public benefits like Medi Cal and SSI.

For planning purposes, a special needs trust is still needed, but the ABLE Act is a an additional resource for special needs individuals.

Under the ABLE Act, states can set up a savings program for people with disabilities. This savings program is similar to 529 accounts. With certain restrictions, an account can be established for use by a beneficiary with special needs.

An ABLE account can be set up by a friend, family member, parent and even a person with disabilities, for the benefit of an eligible beneficiary – at any age. The eligible beneficiary must be a recipient of SSI or SSDI by the age of 26.

Limits of the ABLE Act:

There are limits to the amount of savings that can be in an ABLE account. The annual contribution amount cannot exceed the annual gift-tax exclusion of $14,500 [for 2015]. Also, ABLE accounts can only accumulate aggregate contributions up to the state’s limit on qualified tuition programs, similar to 529 plans, which range from $300,000 to $400,000.

But, SSI exempts the first $100,000 of an ABLE account. So if a person receives SSI, their ABLE Account cannot be greater than $100,000 and the person can only have other assets that total up to $2,000. If the amount is greater than $2,000, then the person will become ineligible for SSI, but will still be eligible for Medi Cal.

Medi Cal Payback

The ABLE Account is a “Medi Cal Payback” account. This means that upon the death of the account beneficiary, Medi Cal payments given to a beneficiary after the establishment of the ABLE account have to be reimbursed with any money remaining in the ABLE account.

Tax Benefits

ABLE accounts tax benefits are the same as 529 accounts. Qualified distributions from the account are not taxable to either the contributor or the beneficiary. Qualified distributions include expenses paid for the beneficiary’s benefit.

Also, earnings of the ABLE account are not taxable to the contributor or the beneficiary. But contributions must be made from post-tax income.

Assets in an ABLE account can be rolled over to another ABLE account for the benefit of another qualified person who is a brother, sister, stepbrother or stepsister of the beneficiary.

California has not yet enacted its version of the ABLE Act but projections are that it will do so in 2016.

If you have further questions about the benefits of the ABLE Act, contact the experienced attorneys of Santaella Legal Group, APC. We service San Ramon, Danville, Dublin and the entire bay area.