There is a new tool in planning for the disabled. There are many types of savings plans on the block. Each plan has its own little niche. A 529 plan can be a great tool for someone who will use the assets for education. This is because a 529 plan is income tax-free if used for education. (For more on 529 plans, read the article which I wrote on those plans.) Much like a 529 plan, the income of which is not taxed as long as used for qualified education expenses, the income of an ABLE account is not taxed as long as it is used for qualified disability expenses, including: “education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses…”
The income tax savings is attractive. But, the big benefit of ABLE accounts is neither the account, nor distributions from it for qualified disability expenses (see above), are to be considered for the purposes of any part of Federal law which takes finances into account in determining eligibility for benefits, except that it will be considered for SSI if the balance exceeds $100,000. That’s a huge benefit. Also, even if the balance exceeds $100,000, it will not impact their Medicaid eligibility. Further, the ABLE account is exempt in bankruptcy.
In order to set up an ABLE account, the beneficiary must be disabled by a condition which started prior to age 26. (“Disabled” has the social security meaning, even if not on social security disability.) The beneficiary may be above age 26 when the account is established. An amount up to the gift tax annual exclusion may be contributed for the beneficiary each year, in total by all donors. In 2015, that limit is $14,000.
In many different ways, life is more difficult for disabled individuals. Simple tasks such as bathing or getting dressed in the morning may be an enormous undertaking for them. Now, there is a program which will make life a tad easier for them. While this will not eliminate their enormous burden in life, it will allow an additional tool in their financial planning. This will allow the disabled to have a little financial cushion and still qualify for benefits. While this may not be the only, or even the primary, tool used in planning for the disabled, it is a good arrow for the attorney to keep in his or her quiver when planning for the disabled. Here are links to more information about the ABLE Act: Link 1; Link 2.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
- Assignment and Nominee - July 7, 2020
- Removing Life Insurance Without Triggering the Transfer for Value Rule - June 30, 2020
- Removing Life Insurance from the Taxable Estate - June 23, 2020
