ABLE Act

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Achieving a Better Life Experience Act

The Achieving a Better Life Experience (ABLE) Act, codified at 26 U.S.C. §529A, offers a valuable planning tool for persons with disabilities. Before ABLE accounts may be created, a state must pass legislation establishing a qualified ABLE Program to administer the accounts, or contract with another state having such a program. The ABLE Act has been in existence for several years, over half of the states have established Qualified ABLE Programs. The ABLE Act allows non-resident individuals to participate in another state’s qualified ABLE Program, if such program allows for out-of-state participants.

Although New Hampshire did not establish its own qualified ABLE Program, developments in December 2017 resulted in New Hampshire partnering with the State of Ohio to offer ABLE accounts for New Hampshire residents under a program called STABLE NH. These accounts will be managed by Ohio’s STABLE program, which offers ABLE accounts to individuals with disabilities nationwide. Although New Hampshire residents have been able to enroll in Ohio’s STABLE program (and other state programs accepting out-of-state participants) since inception, once STABLE NH launches, New Hampshire residents will be eligible to open STABLE NH accounts at discounted rates. The program launched on December 15, 2017. Updates on this new program will be posted by the New Hampshire Governor’s Commission on Disability at https://www.nh.gov/disability/.

Whether participating in STABLE NH or another state’s program, the ABLE Act allows a person with disabilities to own one tax-advantaged savings account, modeled after 529 education plans, without jeopardizing receipt of federal “means-tested” benefits that determine eligibility based on financial limits, including Supplemental Security Income (SSI) and Medicaid. Although asset limits vary depending on the public benefits program at issue, owning more than $2,000 prevents an individual from receiving SSI cash benefits, and owning more than $2,500 prevents eligibility for many 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 be blind or disabled under the Social Security standard, and the disability must have arisen before age 26. If an individual was disabled prior to the age of 26 but currently is not receiving SSI or Social Security Disability Insurance (SSDI), or was not receiving such benefits prior to age 26, the individual may be asked to provide a certification from a licensed physician evidencing the Social Security disability standard is met and that the disability onset date arose before age 26.

If annual contributions to, and the total value of, ABLE accounts remain within federally prescribed limits, 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 for permissible defined “qualified disability expenses,” no income tax will be due on distributions from the account.

Any person may contribute assets to an account. However, only the first ABLE account established for an individual will be disregarded when determining eligibility for public benefits, which may be problematic if multiple accounts accidentally are funded for the same individual. Subject to some exceptions, the maximum annual contribution to an account from all sources is limited to the federal annual gift tax exclusion – i.e., $15,000 in 2018. Additionally, an exception exists to permit some beneficiaries of ABLE accounts, e.g., those who are employed, to make further annual contributions (currently, until 1/1/2026) if the beneficiary is not contributing to defined tax-deferred retirement plans or annuities.  Account contributions only may be made in cash (for instance, ABLE accounts cannot hold real estate or tangible personal property), and the total value of the account cannot exceed the state’s limit for a 529 college savings account. Tax reform at the end of 2017 also allowed for rolling over funds from a standard 529 education plan to an ABLE account, still subject to the annual contribution limit.

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 the individual would be ineligible for SSI, other federal benefits, like Medicaid, would continue to be available if the ABLE account 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 for  a very broad range of expenses, without jeopardizing eligibility for public benefits program. See the Social Security Program Operations Manual System (POMS), Section SI 01130.740, for more specifics. The Social Security Administration’s POMS on ABLE accounts make it clear that a distribution from an ABLE account is not treated as “income” for eligibility purposes but, rather, a conversion of a resource from one form to another. Common uses for an ABLE account include paying for rent, utilities, food, education, transportation, technology, personal supports and health care. Notably, using ABLE funds for housing and food expenses will not be counted as income to the beneficiary under the SSI program, whereas assistance from a family member or distributions from a special needs trust (SNT) to pay for food and shelter will be counted as income. Again, any distributions for the payment of expenses deemed not to be “qualified disability expenses” will be subject to income taxation and a penalty, which will not affect public benefits eligibility.

Assets remaining in the account upon a beneficiary’s death first must be used to reimburse state(s) for Medicaid services provided to the beneficiary after creation of the ABLE account. This reimbursement is similar to that required for self-settled SNT established under federal law, 42 U.S.C. §1396p(d)(4), except that reimbursement under a self-settled SNT will extend to all Medicaid services provided to the beneficiary, even those prior to the establishment of the SNT. Any funds remaining in the ABLE account after reimbursement for Medicaid may be distributed to the individual’s estate or a designated beneficiary.

Individuals should consider whether an ABLE account (and in New Hampshire, a “STABLE NH” account) is a good fit, either alone or in conjunction with an SNT. A self-settled SNT is funded with the beneficiary’s own assets and must be established in conformance with federal law, 42 U.S.C. § 1396p(d)(4)(A) or (d)(4)(C). A third-party SNT is created by, and funded with, assets of someone other than the person with disabilities. There is no annual cap on how much either a beneficiary may transfer to his or her own 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 an 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 the annual ABLE contribution limits in any given year, or becomes disabled later in life. A third-party SNT remains a highly important estate 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.

ABLE accounts and SNTs ultimately serve similar objectives – that of improving the quality of life of a person with disabilities and preserving eligibility for means-tested benefits. ABLE accounts increase the flexibility in planning by establishing tax-advantageous savings opportunities for beneficiaries and their loved ones, and allow for smaller accounts to be used for the beneficiary’s basic needs like shelter and food. An ABLE account is 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.