The IRS has issued final regulations for Able accounts, a tax-advantaged savings account for those determined to be disabled before age 26, pursuant to the Achieving a Better Life Experience (Able) Act that was passed six years ago. Funds deposited into Able accounts do not risk loss of Supplemental Security Income, Medicaid and other government benefits assuming the qualifications are met.
Able accounts are similar to Section 529 college savings accounts whereby contributions to the account grow tax-free as long as distributions are used for “qualified disability expenses” instead of educational expenses that is the primary use for 529s. The definition of qualified disability expenses include housing and food (which is more restrictive if it were in a self-settled special needs trust), in addition to educational services, transportation, employment training, personal support services, funerals and burials, assistive technology services, financial management services, basic living expenses and legal fees.
Unlike a special needs trust which does not permit the disabled person to be a trustee of their own trust, a disabled person (assuming they have mental capacity) can manage and control their own account whether or not they contributed to the account for their benefit. Contributions to the account are limited to annual gift tax exclusion (presently $15,000) and can be made by family members and friends in addition to the beneficiary, his or her agent under a power of attorney or his or her Social Security representative payee. The account can grow to be $100,000 without it counting towards the Medicaid and Supplemental Security Income countable resource limit of $2,000. If the disabled beneficiary is working, then they may be entitled to a Saver’s Credit for the first $2,000 in contributions they made to the account (which reduces income tax or increases their refund). Funds from 529 college savings account can be rolled over to an Able account.
Able accounts (similar to special needs trusts established with the funds of the disabled beneficiary) require a payback to the government for benefits advanced. A special needs trust established with someone’s funds (other than those of the beneficiary) does not require a payback to the government. Furthermore, a special needs trust has no limit to the amount that can be contributed. Also, a disabled person who became disabled after age 26 can create a special needs trust (either individually if they have mental capacity or by a parent, grandparent, court or guardian) until age 65 without the funds counting as a resource for Medicaid or be subject to a transfer penalty.
Nonetheless, Able accounts give greater flexibility in spending on beneficiary, gives the beneficiary the ability to be in control of assets for their own benefit and encourages the beneficiary the work instead of being a ward of the government.
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