What Is an ABLE Account?

Do you have a loved one with special needs? If so, you may be worried about how to provide for them. You see, leaving or giving money to a person with special needs can be complicated. This is mainly due to the fact that many special needs individuals rely on the continued receipt of government benefits to pay for key expenses. Gifting or leaving money to a person with special needs can jeopardizing the person’s continued ability to qualify for these government benefits. You may have heard of a special needs trust for these purposes. Have you heard of an ABLE account? 

What is an ABLE Account?

ABLE accounts were provided for by the federal Achieving a Better Life Experience (ABLE) Act. While they come from federal law, ABLE accounts are both established as well as managed at a state level. While not all states have ABLE accounts yet, California does have an ABLE program. It is referred to as “CalABLE” and it is a program that is offered to both residents and nonresidents.

Before the development of ABLE accounts, those individuals with special needs had little incentive to have any kind of savings. Savings would just be used against them in the calculation of government benefits. Instead, special needs individuals had to depend on what little money they received in the form of government aid. One workaround for this was the special needs trust which provided a form of savings that could be used for the benefit of the person with special needs without jeopardizing government benefit eligibility. Special needs trusts, however, must be controlled and managed by a trustee who is not the special needs beneficiary. This means that the special needs individual is left with little to no control over financial matters and independence is, thus limited.

With an ABLE account, a person with special needs can maintain and manage a bank account without being penalized for government benefit purposes. In order to qualify for an ABLE account, the individual must have a disabling condition that began prior to age 26. Only one ABLE account is allowed per person and anyone can contribute money to the account, including the special needs individual. Contributions are subject to annual caps. The limit for both 2019 and 2020 is $15,000 and funds can only be used for Qualified Disability Expenses (QED). This includes expenses that are related to the disability of the account holder. Account funds that are properly used, as well as the income earned from the account funds, are not subject to taxation. Funds that remain unused in the ABLE account when the special needs individual passes away are turned over to Medicaid as reimbursement for services rendered to the individual enrolled in that program.

Estate Planning Attorneys

If you or a loved one has special needs, there are tools available to help you with effectively planning for a solid financial future. Talk to the knowledgeable attorneys at OC Wills & Trusts about your options. Contact us today.