Persons with disabilities often confront substantial financial difficulties — especially as adults — because ownership of more than $2,000 in assets will make them ineligible for government benefits that are critical for their care and support. Families with the resources necessary to create special needs trusts have used these trusts to hold assets for the benefit of disabled persons without those assets affecting eligibility for government benefits or programs.
At the end of 2014, President Obama signed the federal ABLE Act, modeled after the Section 529 of the Tax Code governing college savings plans. The ABLE Act allows states to establish programs whereby disabled people may save money in tax-deferred accounts that may be used to pay for qualified disability expenses, without losing eligibility public benefits as a result of owning assets held in these accounts. Withdrawals from ABLE accounts will be tax-free, as long as they are used for qualified disability expenses. States also may choose to offer a state tax deduction for contributions to these accounts.
Unlike 529 college savings accounts, only the disabled individual or a legal guardian (or someone holding a power of attorney) may open an ABLE account, and each disabled person may only have a single ABLE account. Accounts cannot be opened by other people on behalf of a disabled person. Multiple individuals can contribute to a disabled person’s ABLE account, but the total contributions in a particular year may not exceed the federal gift limit, which is currently $14,000. Total lifetime contributions may not exceed $350,000. When the beneficiary passes away, and if that person used Medicaid, the Medicaid program can be reimbursed out of funds remaining in the account.
Assets in an ABLE account are disregarded for purposes of determining Medicaid eligibility. For purposes of determining eligibility for Supplemental Security Income (SSI), however, only the first $100,000 in ABLE account assets are disregarded. SSI payments of monthly cash benefits will be suspended if the beneficiary’s ABLE account balance exceeds $102,000. In other words – unlike the current situation, in which a disabled person may hold no more than $2,000 in personal assets without losing government benefits – a disabled person may now hold up to $102,000 in an ABLE account without losing SSI benefits.
The Maryland Legislature has established a Maryland ABLE program, and the program is in the process of being set up. Maryland has decided to make the first $2,500 per year in contributions to an ABLE account deductible from state taxes (in addition to all earnings on the accounts being tax-free). Maryland plans to decide, by the end of this summer, which investment company will serve as the program manager, and Maryland ABLE accounts are scheduled to become available to the public by approximately November 1, 2017.
While ABLE accounts perform many of the same functions as a special needs trust, costs for an ABLE account are far lower than the cost to establish and maintain a special needs trust. While there still will be some situations in which a special needs trust is needed, for many families an ABLE account will meet all of their needs at a substantially lower cost. Individuals can maintain both an ABLE and account and a special needs trust, if necessary.
More information about ABLE accounts may be found at Maryland529.org/MDABLE.