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ABLE Accounts A New Savings Tool for Special Needs By Margaret Heiser Fulton A new type of account, called the ABLE account, gives individuals with disabilities an opportunity to save and invest without jeopardizing their access to needs-based public benefits. ABLE accounts were authorized under the federal Achieving a Better Life Experience (ABLE) Act of 2014, which allows the states to establish tax free savings accounts to be used by eligible people with disabilities. ABLE accounts are similar to 529 college savings plans in that both types of accounts are administered by the state establishing the program and the funds in the accounts grow free of income tax. However, ABLE accounts have a very different purpose than the college savings plans. An ABLE account is a new financial tool which allows a disabled person who is dependent on public benefits to save and accumulate funds without losing the benefits. Each disabled person’s ABLE account can hold up to $100,000 in total without affecting the beneficiary’s eligibility to receive needs-based benefits such as Supplemental Security Income (SSI) and Medi-Cal. Previously, individuals receiving these benefits could only have $2,000 in savings before their benefits would be affected. Now, if a disabled adult has an ABLE account, he, his friends and his relatives can contribute up to a total of $14,000 a year under current law without disqualifying the disabled adult for public benefits. If it is possible for the disabled person to work, he or she can now deposit some of that income in an ABLE account without being concerned about having more than $2,000.

How does the ABLE account work? The ABLE account can function both as a savings account and an account from which withdrawals can be made. If capable, the adult with the disability will be able to open and manage the ABLE account thus enhancing his independence and quality of life. If the disabled person is not capable of handling the account, an authorized third party, such as a parent, conservator, or person acting under a power of attorney, can manage the account on behalf of the beneficiary. Since each state’s ABLE program is self-sustaining, there will be fees associated with this account. To be eligible to open an ABLE account, the individual must have experienced the onset of blindness or the disability before age 26 and meet other disability and severity requirements outlined by the Social Security Administration. The funds in the ABLE account must be spent on qualified disability expenses. The categories of these expenses are intentionally broad, and include education, housing, transportation, healthcare expenses, and more. ABLE accounts do have some limitations. Each disabled individual can only have one account with the annual contribution limitation currently set at $14,000 per year. In addition, if funds remain in an ABLE account upon the death of the account beneficiary, these funds must first be used to reimburse Medi-Cal for benefits received by the beneficiary after the ABLE account was opened. It is possible that California legislation may remove this requirement. Soon, we will have an ABLE program in California. In 2015, the California State

Legislature created the CalABLE Board to implement the CalABLE program. CalABLE accounts are expected to be available in the summer of 2017. The CalABLE Board is now designing the California program and is actively seeking input on program features from potential users. More information on CalABLE is available on the Board’s website at www.treasurer.ca.gov/able. If you want to open an ABLE account now, you can use an ABLE program established in another state. Ohio, Tennessee, Nebraska, and Michigan have ABLE programs and welcome out of state residents. To find information on ABLE accounts in other states, visit the ABLE National Resource Center at www.ablenrc.org. Often, it will be a good idea to use an ABLE account and a special needs trust together. For example, the beneficiary of a special needs trust should not receive direct distributions of cash from this trust. However, the trustee of the special needs trust can distribute cash to the ABLE account and, if appropriate, the beneficiary will have access to the funds in that account and can independently take care of some of her needs. On the other hand, gifts to a person receiving public benefits which are over $14,000, such as an inheritance, should be made to a special needs trust, rather than to an ABLE account. The use of ABLE accounts, especially when combined with special needs trusts, can be complicated. We highly recommend consulting with an attorney or planner with experience in the special needs area to determine which savings options are best for your family.

Margaret Heiser Fulton is an attorney certified as a Specialist in Estate Planning, Trust and Probate Law by the State Bar of CA Board of Legal Specialization. She received her B.A. from UC Berkeley, and earned her law degree from Hastings College of the Law in San Francisco. She has been an instructor of business law and federal income taxation at Sierra College, and she is a member of the Academy of Special Needs Planners. Visit www.Fulton-Law.com or call 530-823-2010 for more information.

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Sacramento Parent January 2017  

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