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Bar News - March 18, 2015

Elder, Estate Planning & Probate Law: ABLE Accounts: A New Tool to Enable Independence


After years of planning by the disability community and with strong bipartisan support, the Achieving a Better Life Experience (ABLE) Act was signed into law Dec. 19, 2014. This federal statute adds a tool to the planning options available to persons with disabilities, and will be codified as 26 USC §529A.

Before ABLE accounts may be created, states must pass legislation establishing a Qualified ABLE Program to administer the accounts, or contract with a state having such a program. New Hampshire started this process with the introduction of Senate Bill 265-FN, an act establishing an ABLE savings account program.

The ABLE Act enables a person with disabilities to own a tax-advantaged savings account, modeled after Section 529 college-savings plans, for the payment of disability-related expenses, without jeopardizing receipt of federal “means-tested” benefits that determine eligibility based on financial limits, like Supplemental Security Income (SSI) and Medicaid. Although asset limits vary depending on the program, owning more than $2,000 prevents an individual from receiving SSI cash benefits, and owning more than $2,500 prevents eligibility for certain essential Medicaid programs in New Hampshire. Under the right circumstances, ABLE accounts may afford qualifying individuals the opportunity to own and control assets above these minimal limits.

ABLE accounts have both age and disability requirements, and are structured so the person with disabilities is the owner and beneficiary of the account. To create, own and benefit from an ABLE account, an individual must have become blind or disabled under the Social Security standard before age 26. Persons who are not receiving SSI or Social Security Disability Insurance (SSDI) based on conditions arising before age 26 must provide a disability certification from a licensed physician evidencing the standard is met.

If annual contributions to, and the total value of, the ABLE account remain within federally prescribed limits, and the assets are distributed only to pay for defined “qualified disability expenses,” then the contributions, account value and distributions generally will be disregarded for, and not jeopardize access to, federal means-tested benefits. Additionally, as long as the account remains within the authorized limits, no income tax will be imposed on the account’s growth, and if the account is used only for permissible expenses, no income tax will be due on qualifying distributions.

Any person may contribute assets to an account, but only the first ABLE account established for an individual will be disregarded during a benefits determination, which may be problematic if multiple accounts accidentally are funded for the same individual. Subject to some exceptions for ABLE account roll-overs, the maximum annual contribution to an account from all sources is limited to the federal annual gift tax exclusion, currently $14,000. Account contributions only may be made in cash, and the total value of the account cannot exceed the state’s limit for a 529 college savings account, currently $375,000 in New Hampshire. However, only the first $100,000 is disregarded when determining eligibility for SSI benefits.

Consequently, SSI benefits temporarily will be suspended if the value of an individual’s ABLE account exceeds $100,000. Although an individual with an ABLE account balance exceeding $100,000 would be ineligible for SSI, other federal benefits, like Medicaid, would continue to be available if the balance remained below the state’s 529 limit. States must provide monthly reports to the Social Security Administration regarding account balances and distributions.

The beneficiary-owner may use the account to pay expenses related to his or her disability including, for example, education, transportation, technology, personal supports and health care. Notably, distributions for housing expenses will be counted as income to the beneficiary under the SSI program, and any distributions for the payment of non-allowable expenses are subject to income taxation and a penalty. Federal regulations are expected to offer further guidance concerning permissible expenses.

Upon the beneficiary’s death, the state of residence is entitled to reimbursement for Medicaid services provided to the beneficiary after creation of the ABLE account. This reimbursement is similar to that required for self-settled special needs trusts (SNTs) established under 42 USC §1396p(d)(4). Any funds remaining in the ABLE account after reimbursement may be distributed to the beneficiary’s estate or a designated beneficiary.

If NH Senate Bill 265-FN is passed, individuals should consider whether an ABLE account is a good fit, either alone or in conjunction with a SNT. A self-settled SNT is funded with the beneficiary’s own assets and must be established in conformance with 42 USC §1396p(d)(4)(A), (C) either by a parent, grandparent, guardian or court, in the case of a (d)(4)(A) SNT, or by the same persons or the beneficiary for a “pooled” (d)(4)(C) SNT. A third-party SNT is created by, and funded with, assets of someone other than the beneficiary with disabilities.

There is no annual cap on how much either a beneficiary may transfer to a self-settled SNT or persons may gift to a third-party SNT, and a properly created SNT has no limit on the amount or type of assets it may receive. Also, there is no requirement that a SNT beneficiary’s disability arise before age 26.

Consequently, a self-settled SNT still may be needed if a person on SSI or Medicaid receives assets that exceed $14,000 in any given year, or becomes disabled later in life. A third-party SNT still remains a highly important planning tool if the goal is to provide for a person with disabilities without monetary limit, and without exposing an inheritance or gift to Medicaid reimbursement. Furthermore, without a trust, an individual who is incapacitated may need a guardian to create and manage the ABLE account.

An ABLE account is expected to be a valuable new tool available to qualifying individuals who want to maintain financial independence and control over personal resources without jeopardizing benefits, although the account likely will be only one component of an overall plan established for the individual’s needs. If circumstances merit the use of an ABLE account, it is critical that all parties involved in its creation, funding and ongoing administration receive guidance to ensure eligibility for public benefits is preserved.

Judith L. Bomster

Judith L. Bomster is a partner at Butenhof & Bomster, focusing her practice in the areas of estate and special needs planning, and elder law. Juli Hincks is a third-year law student at UNH School of Law and a member of the Daniel Webster Scholar Honors Program.

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