An important element of estate planning is planning for the future of a person with special needs. There are several tools a family can use to protect a loved one. One of the newest special needs estate-planning tools that many families are discussing with their Maryland estate-planning attorney is the ABLE account. If you have never considered an ABLE account, you may want to discuss one with your lawyer.
What is an ABLE Account?
President Obama signed the Achieving a Better Life Experience (ABLE) Act into law in 2014. However, it took roughly three years for the various government agencies affected by the ABLE Act to develop and implement regulations. States also had to pass legislation and regulations for ABLE accounts. Maryland is one state that has finalized regulations so families in Maryland can take advantage of the new option for assisting individuals with disabilities.
The ABLE account is a savings account set up to benefit a person with a disability. The account allows a person with special needs to save money for basic living expenses with jeopardizing the person’s eligibility for Social Security disability benefits and other government benefits. An ABLE account supplements disability benefits by covering expenses that disability benefits do not cover.
Until the passage of the ABLE Act, many individuals with disabilities had to live with very little money. They could not save money for an unexpected expense or special occasion. Now, families can improve the quality of life for their loved one without fear of losing disability benefits and other government aid that their loved one depends on each month to survive financially.
14 Things You Might Not Know About Able Accounts
1. An individual must have been diagnosed with a disability before his or her twenty-sixth birthday to be eligible for an ABLE account. The age requirement only applies to the onset of the disability. An individual over the age of 26 who has special needs may qualify for an ABLE account provided that the onset of the disability was before age 26.
2. Anyone, including family and friends of the individual, may deposit up to $15,000 annually into the ABLE account.
3. The owner of the account uses the funds to pay for the health care expenses, employment training, personal support services, education, transportation, and basic living expenses of the individual with the disability.
4. An individual may use the funds in his or her ABLE account to pay rent or mortgage payments. A trustee cannot use the funds in a Special Needs Trust to pay housing costs for the beneficiary.
5. The balance of an ABLE account does not count as an asset for Social Security disability benefits unless the balance in the account exceeds a certain amount. An ABLE account can have up to $100,000 in the account before it affects the eligibility requirements for Supplemental Security Income (SSI). Once the balance in the account reaches $100,000, the Social Security Administration suspends SSI payments. The payments should automatically resume when the balance in the account falls below $100,000.
6. The interest earned by the ABLE account is tax-free.
7. Individuals who contribute to the account may qualify for a tax deduction on their Maryland state taxes.
8. The account owner may choose from one of three investment portfolios. The owner may choose an aggressive growth plan or a conservative growth plan based on the owner’s risk tolerance.
9. A beneficiary can use his or her own funds to set up the ABLE account and continue contributing funds to the account.
10. Under Maryland law, an individual’s power of attorney or guardian must set up the account or the account may be set up by the individual. If the individual is under 18, a parent may set up the account.
11. The Maryland Medicaid program receives any remaining funds in the ABLE account upon the death of the beneficiary to repay the agency for funds paid on behalf of the person during his or her lifetime.
12. ABLE account funds are protected if the individual needs to file for bankruptcy relief.
13. Funds withdrawn from the account for a non-eligible expense may be subject to taxes and a 10 percent penalty on the portion of the withdrawal that represents earnings.
14. A beneficiary may create a gifting page online to allow friends and family members to contribute funds to his or her ABLE account easily. Gifts made directly from a bank account (ACH) and gifts by check through the mail incur no charge. Online gifts made with debit cards incur a small fee.
What is the Difference Between a Special Needs Trust and an ABLE Account?
An ABLE account offers some of the same benefits of a Special Needs Trust, such as holding money for an individual with a disability that can be used to pay bills and expenses without jeopardizing eligibility for government benefits.
However, an ABLE account costs far less to set up than a Special Needs Trust and is not as complicated to manage. The funds in a Special Needs Trust cannot be used for all expenses, such as housing expenses. An ABLE account is more flexible in how the owner may use the funds, and the owner retains control of the funds. On the other hand, it may be better to have a trustee manage the funds under a Special Needs Trust to limit access by the beneficiary, such as in the case of a mental illness.
Contact a Maryland Estate-Planning Attorney for Help
An ABLE account may not be the best choice for all individuals. Families may want to establish a Special Needs Trust and use the ABLE account to hold a small amount of money for the individual to use. A Maryland estate-planning attorney can provide advice, support, and guidance for families who need to develop a comprehensive special needs plan to protect a family member.
Contact Thienel Law, LLC today to get the legal counsel you need and peace of mind when dealing with estate-planning matters. Maryland estate-planning attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.