ABLE Accounts Offer Flexibility for SSI Beneficiaries
In 2014, Congress passed the much-anticipated Achieving a Better Life Experience (ABLE) Act to permit the creation of savings and investment accounts for people receiving public benefits and avoiding the need for more restrictive special needs trusts. In the process, they gutted the bill, making the resulting accounts much less useful as substitutes for special needs trusts than was intended. One restriction is that they’re only available to individuals who became disabled before age 26. However, the accounts can still be very useful for people who qualify by easing the $2,000 asset limit for SSI and Medicaid and in simplifying the administration of special needs trusts.
ABLE accounts were intended to be similar to 529 accounts through which parents and grandparents can set aside tax-preferred funds to pay for higher education for their children and grandchildren. The thought was to provide a similar benefit to children and grandchildren who will probably never go to college. But the following limitations restrict their use for this purpose:
- They may be funded with only $14,000 a year. This is the amount of the exclusion for gift taxes which is really only relevant to people with more than $5.5 million, but the gift tax rules permit anyone to receive $14,000 from any number of people every year. ABLE accounts may only receive this amount from all sources during a calendar year. And beneficiaries are limited to a single ABLE account.
- The accounts will only shelter up to $100,000. If the account holds more than $100,000, the Social Security Administration will disqualify the owner from SSI.
These two rules mean that no one can shelter more than $14,000 in an ABLE account in one year. So, no one can use these instead of a special needs trust as part of an estate plan unless they are only leaving their child or grandchild $14,000. An individual who comes into money as the result of an inheritance or personal injury lawsuit cannot use these accounts unless they have received less than $14,000. A person turning 18 and wanting to qualify benefits can only use an ABLE account if she has a small sum to shelter.
All of that said, ABLE accounts are very useful for as a tool to loosen the rigid SSI limits on income and assets. SSI and many Medicaid programs limit beneficiaries’ countable assets to $2,000, a figure has not been changed since 1989, which is more than a quarter of a century ago. ABLE accounts offer a safety hatch—permitting beneficiaries to have more than $2,000, even up to $100,000 if funded over time, that they can use as needed. Their use of the funds is not considered to be income since they already own accounts. In addition, the SSA has ruled that contributions to ABLE accounts also will not be considered income for SSI eligibility purposes. This means that a trustee could deposit money into an ABLE account for a beneficiary, perhaps as much as $1,000 a month, that the beneficiary can then use freely for his purposes. This avoids burdensome work-arounds, such as paying off the beneficiary’s credit card or creating accounts at each of the vendors the beneficiary is likely to use during a month.