The ABLE Act—Uses and Limitations for Persons with Disabilities and Their Families

The ABLE Act—Uses and Limitations for Persons with Disabilities and Their Families

 by Dennis C. McAndrews, Esq.

At the end of the 2014 Congressional session, Congress passed, and the President signed, the Achieving a Better Life Experience Act, otherwise known as the ABLE Act. The plan was first introduced into Congress in 2006, and was intended to substantially mirror, for persons with disabilities, the provisions of 529 Plans which provide for individuals who attend post-high school education programs. However, in the years before the ABLE Act became law in late 2014, the original Act was amended in a many significant ways which are critical to understanding the limitations and proper uses of ABLE Plans.
The primary advantage of the law is that contributions grow tax–free until withdrawals are made for specific “qualified disability expenses”, such as education, housing, transportation, wellness, legal fees, administrative fees, financial planning, funerals and “oversight” expenses. These permitted ABLE expenditures may, in some instances, be more narrow than under a Special Needs Trust. At the same time, however, there are limitations or differences from 529 Plans which will significantly limit the use of ABLE Plans in special needs/estate planning.
For example, the total annual contribution permitted by all individuals under the ABLE Act is only $14,000 per year, which will be adjusted each year slightly for inflation. The total aggregate contributions (that is, the contributions for all years by all persons) cannot exceed more than $100,000 without losing Supplemental Security Income, and while Medical Assistance may continue, it remains to be seen how states will act when the total aggregate sums reach the level (often a higher level than $100,000) set by the state’s 529 Plan. A payback to the state Medicaid agency exists under the ABLE Act, thus meaning that any sums remaining in the account after the death of the disabled beneficiary are subject to payment to the state Medicaid agency to repay that agency for Medicaid provided to the beneficiary after the account was created. States which establish ABLE accounts must periodically submit an electronic report regarding each account to the Social Security Administration to reflect the amount in the account and its uses. No such payback or reporting requirement exists with a Third-Party Funded Special Needs Trust which is used in a typical estate plan for families with a loved one with a disability.