23rd Dec 2014
The ABLE Act Explained
A Joint WealthCounsel / ElderCounsel Thought Paper
Stephen W. Dale, J.D, LLM. Jeremiah H. Barlow, J.D.
This thought paper is a collaboration between WealthCounsel and ElderCounsel, with
special thanks to Stephen W. Dale for his contribution.
On December 19, 2014, the Achieving a Better Life Experience Act (ABLE Act of
2014) was signed into law. i The vote concluded a campaign that first began in 2006
to approve the use of tax-free savings accounts for individuals with disabilities to
cover expenses not covered by government sponsored programs. The ABLE Act
allows for those with disabilities to have a supplemental source of income beyond
those provided by governmental programs, such as Medicaid and social security.
The passage of the ABLE Act is significant given that the National Disability Institute
estimates that there are 58 million individuals with disabilities in the United States.
What Does the ABLE Act Accomplish?
The ABLE Act allows for individuals to utilize a tax-free, state-based private savings
account, referred to as an ABLE account, for the care of people with disabilities. This
ABLE account can be used to supplement government benefits for “qualified
disability expenses” such as medical and dental care, education, employment
training, housing, and transportation, while not disqualifying a disabled individual
from governmental benefits. ii
Structurally, the ABLE act is built upon the foundation of the current 529 Education
Savings Plans that help families save for college. iii As such, the ABLE Act provides
persons with disabilities the same types of flexible savings tools that all other
Americans have through college savings accounts, including choice of investment
strategies and tolerance. Similar to 529 plans, income earned by the accounts will
not be taxed, and, contributions to the account are not tax- deductible. iv
Why is the ABLE Act Significant?
For the first time, the ABLE Act formally recognizes the extra and significant costs of
living for a person with disabilities. Persons with disabilities depend on a wide
variety of public benefits for assistance with health care, food, housing assistance,
etc. To be eligible for these public benefits, a person generally must meet certain
resource limitations, such as reporting no more than $2,000 in cash savings,
retirement funds and other items of significant value at any one time. This limitation
leaves very little assets to provide for those essential needs not covered by governmental programs, such as housing, transportation, personal assistance services, assistive technology and health care.
As a result of the ABLE Act, eligible individuals and families are now allowed to
establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid
and other public benefits. The legislation explains that an ABLE account will, with
private savings, “secure funding for disability-related expenses on behalf of
designated beneficiaries with disabilities that will supplement, but not supplant,
benefits provided through private insurance, Medicaid, SSI, the beneficiary’s
employment and other sources.” v
Who is Eligible for an ABLE Account?
The ABLE Act states that eligibility will be limited to those individuals with
“significant disabilities” with an age of onset of disability before turning 26 years of
age. vi If an individual meets this criterion and is also receiving benefits already under
SSI and/or SSDI, they are automatically eligible to establish an ABLE account. If a
person with a disability is not already receiving SSI and/or SSDI, but still meets the
age of disability requirement, she would still be eligible under a certification process
to open an ABLE account if the SSI criteria regarding significant functional limitations
are met.vii Certification can not be used to qualify for SSI or SSDI.
Specific regulations on how to establish eligibility will come in 2015. What we do
know based on the language of the ABLE Act is that a person with a disability does
not need to be under the age of 26 to be eligible for an ABLE account. If over the
age of 26, the person will have to provide documentation of their disability that
indicates age of onset before the age of 26. viii
When Will ABLE Accounts Be Available?
Those who want to set up an ABLE account will have to wait until well into 2015
before being able to set one up. Although it is currently signed in to law, regulations
must be established before states can begin to set up procedures for managing
ABLE accounts. Some key issues that will need to be determined before accounts
can be set up are the following: 1) what information must be presented to open an
ABLE account, b) the various documents needed to meet requirements of ABLE
account eligibility, c) the definition of “qualified disability expenses”, and d) the
documentation that will be needed for tax reporting. The Treasury Department will
be charged with this responsibility. After the regulations are established, each
individual state will be responsible for establishing and operating the ABLE program.
Are There Limitations to How Much Can be Contributed to an ABLE Account?
Like 529 Plans, each individual state will determine the total limit over time that can
be made to an ABLE account, which is similar to how state run education-related 529
savings accounts are governed. For 529 plans, many states have set total limits at
around $300,000 per plan. ix Annually, any individual can make contributions to an
ABLE account of up to the gift tax exemption limit, which in 2014 is $14,000 in total.
Any contribution over $14,000 in a given year may result in disqualification of the
account as an ABLE account.
For persons with disabilities who are recipients of SSI and Medicaid, the ABLE Act
sets further limitations. Under the ABLE Act, the first $100,000 held in an ABLE
account would be exempted from the SSI $2,000 individual resource limit. x If an ABLE account exceeds $100,000, the beneficiary would be suspended from eligibility for SSI benefits and no longer receive that monthly income. However, the beneficiary would continue to be eligible for Medicaid. xi
Additionally, the ABLE Act provides that states can recoup some expenses through
Medicaid upon the death of the beneficiary. Specifically, upon a qualified
beneficiary’s passing, assets remaining in an ABLE account are reimbursed to any
State Medicaid plan that provided assistance from the day the ABLE account was
What Does ABLE Mean from a Planning Perspective?
The ABLE Act, and resulting use of ABLE accounts, is one of many options available
when planning for persons with disabilities. For those planners familiar with special
needs planning, using special needs trusts are still essential tools. For example, third
party special needs trusts provide advantageous planning opportunities because
there are few restrictions, such as no limit to the amount that can be contributed; no
payback to the state, and no age limitations. In addition, a 3rd party special needs
trust that meets the requirements of a Qualified Disability Trust already has an extra
personal exemption. Although the use of ABLE accounts comes with restrictions and
may not be available for all persons with disabilities, it provides a new and additional
resource to help provide for those persons who qualify.
What Does this Mean to the Estate Planning and Elder Law Professional?
The ABLE Act has thrust our country into a discussion of the challenges that families
must face in setting aside resources to ensure the quality of life for a loved one with
a disability. Many of the bulletins that were used to promote this legislation have had
great inaccuracies and omissions, and there is going to be a great deal of education
necessary to counsel families on how to look at all the tools available to them. The
estate planning and elder law professional will need to educate themselves on this
new option, but even more exciting is the opportunity the WealthCounsel and
ElderCounsel members have to educate their clients and communities.
i H.R 647: “Amend[s] the [IRC] of 1986 to provide for the tax treatment of ABLE accounts established under State programs for the care of family members with disabilities, and for other purposes.” The bill passed US House of Representatives on December 3rd, and US Senate on December 16th.
ii H.R 647, Section 101. and Sec. 103(a)
iii Id. Section 105
iv Id. Section 102, amended to add Sec 529A, ABLE Programs (a) and (c)
v Id. Section 101. Purpose; vi Id. Section 102(e)(1)(A)
vii Id. Section 102(e)(2)
viii Id. Section 102(e)(2)
ix See, http://money.usnews.com/
x Id. Section 103(a)(2)
xi Id. Section 103(b)(1)-(2)