With the advent of 529 ABLE accounts, families that have members with disabilities can now set aside funds, which grow tax-free, for the needs of those members now and in the future. Modeled after the 529 education funding accounts, these accounts aim to fill a gap between simply setting aside funds in a taxable account and establishing a special needs trust.
Prior to the Achieving a Better Life Experience Act of 2014, the ABLE Act, if families wanted to set aside funds for disabled children without potentially affecting their government benefits, a very specialized special needs trust was required. This was often prohibitive due to the expense and complication of the trust. Offering families a way to save without jeopardizing government assistance was key to allowing anyone to have the ability to provide for a disabled family member, not just families wealthy enough to hire an attorney to draft the trust.
ABLE accounts are similar to 529 education savings accounts in a number of ways. Money invested in an ABLE account grows tax-deferred and is tax-free when used for qualified expenses. Those expenses are fairly broadly defined, ranging from housing expenses to employment training. In Ohio, families can also claim a $2,000 state income tax deduction when they contribute to an account. Funds in an ABLE account can also be invested, either in stock and bond mutual funds, or in an interest bearing bank product. One key difference is that contributions to the account are limited to $14,000 per year, from all sources.
Utilizing an ABLE account is advantageous because it protects individuals with disabilities from losing benefits such as Medicaid or Supplemental Security Income (SSI). Medicaid benefits are completely unaffected by money in an ABLE account and SSI is simply suspended when an ABLE account balance exceeds $100,000. Once the value of the account drops back to $100,000 or below, full SSI benefits resume.
There are some key things to be aware of regarding these ABLE accounts. First, unlike some special needs trusts, after the death of the beneficiary, Medicaid can seek to file a claim for some amount of repayment for support it provided. In the world of special needs trust planning, this is called a Medicaid payback provision. Also, states will be able to set their own limits for how much can be held in these accounts. In Ohio, the current limit is $426,000. Obviously, at the limit of $14,000 of contributions per year, this is not a limit that will be easily reached, but it is something to be aware of.
Ohio has been a leader in creating a platform for these ABLE accounts to be created and administered, which, just like 529 accounts, can be opened in any state, not only the state of residence. Ohio has named their accounts “STABLE accounts” and have created a very comprehensive website at www.stableaccount.com . For residents of the state of Ohio who have a family member with a disability, this could be a very useful tool. However, for families that are concerned about the Medicaid payback provisions, or who are just concerned that the STABLE account will not be substantial enough to provide for their loved one, it will likely make sense to use these new STABLE accounts in conjunction with a traditional special needs trust.
For additional information on ABLE accounts, contact Budros, Ruhlin & Roe
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