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 originally. 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 Supplemental Security Income (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. In fact, a 529 plan meant for educational expenses may be rolled (in limited amounts) into an ABLE Account if the plan’s beneficiary is eligible for ABLE or rolled over to an account for the benefit of the disabled beneficiary’s sibling(s), step-siblings or half-siblings. This practical change allows families to avoid or mitigate financial penalties for liquidating 529 plans for beneficiaries who can’t use them for their intended purpose and allows the funds to be repositioned for the disabled beneficiary or their siblings. Rollovers from a section 529 plan plus any other contributions or rollovers count toward the annual contribution limit of $15,000 (see below).
The following limitations restrict their use for this purpose:
- They may be funded with only $15,000 a year. This is the amount of the exclusion for gift taxes which is really only relevant to people with more than $11.7 million, but the gift tax rules permit anyone to receive $15,000 from any number of people every year. ABLE accounts may only receive a total 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 suspend the owner from SSI until it falls below $100,000.
These two rules mean that no one can shelter more than $15,000 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 $15,000. 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 $15,000. 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 for qualified disability expenses (QDEs), which are expenses related to the account owner’s blindness or disability. QDEs include payments for education, housing, transportation, or health care, so it’s not a major restriction.
The use of the funds from an ABLE account 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 can 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.
In addition, contributions into an ABLE account have been deemed not be be counted as income for the purpose of determining the contribution to rent of residents of Section 8 or other subsidized housing. Under the Section 8 rules, the tenant’s contribution to rent is approximately a third of his income and in most cases regular distributions to the tenant are counted as income, thus causing an increase in the recipient’s rental contribution and a loss of approximately a third of the value of such income. For instance, if a trust distributed $1,000 a month to a beneficiary living in Section 8 housing, her rental contribution would increase approximately $300 a month, reducing the benefit of the distribution to approximately $700 a month. If instead, the trust distributed the same amount to the beneficiary’s ABLE account, there would be no increase in her rental contribution and resulting loss in the value of the distribution.