The U.S. Congress passed the ABLE (Achieving a Better Life Experience) Act on December 19, 2014 after a long campaign that started in 2006. This act mimics a 529 plan, allowing disabled persons to have a tax-free private saving account to pay for qualified disability expenses such as medical, transportation, housing, education and job training, yet still maintaining their eligibility for SSI, Medicaid and other public benefits. Previously, disabled individual may not have more than $2,000 countable assets in order to qualify for these public benefits. With an ABLE account, a significantly larger amount of fund can be put aside for the disabled person without jeopardizing his eligibility. However, there are limitations:
- the disability of the individual must be established before age 26
- contributions to the ABLE account is not tax deductible
- maximum annual contribution to each disabled person’s ABLE account is $14,000 (as of 2015). This is the total contribution that can be made per disabled person. Not per donor.
- maximum amount in an ABLE account is the same as the maximum for a 529 plan. In Texas, it is $370,000
- once the amount in an ABLE account reaches $100,000, the individual will loose his eligibility for SSI. However, he will continue to be eligible for Medicaid benefit until the account balance reaches the state limit ($370,000)
- Upon the death of the individual, the remaining funds in the account will be used to reimburse Medicaid for any services that were provided to the individual since the account has been established.
As you can see, an ABLE account works similarly to a special need trust with some important differences, e.g. the onset of disability at age 26, the maximum amount in the account, and the pay back clause to Medicaid upon death of the individual. An experienced estate planning attorney will be able to help you decide which tool is a better option for your specific need.