Blog Author: Stephen C. Hartnett, J.D., LL.M. (Tax), Director of Education,
American Academy of Estate Planning Attorneys, Inc.
This is the third article in a series. The first article focused on the use of UTMA / UGMA accounts. The second article focused on 529 plans. This third article focuses on ABLE accounts. ABLE accounts are like Section 529 plans. But, while 529 plans are for education expenses, ABLE accounts (under Section 529A) are for qualified disability expenses.
While a 529 plan may be set up for anyone, an ABLE account only may be set up for someone who was disabled by age 26. Unlike a 529 plan, the beneficiary may only have one ABLE account for their benefit. But, for a disabled beneficiary, an ABLE account can be priceless. An ABLE account may be set up by the beneficiary, their parent, guardian, or agent.
There may be a total of up to $15,000 in contributions from all contributors each year to the ABLE account for the beneficiary. This amount is tied to the gift tax annual exclusion, but again, it is an aggregate limit for all contributors.
While the assets are in the account, they incur no income tax. If distributions are used for the beneficiary’s qualified disability expenses, which is defined very broadly and includes housing, transportation, legal fees, health, etc., those distributions are income-tax free.
But, the unique benefit of the ABLE account is that the assets in the account are disregarded for Medi-Cal purposes. Further, if the balance is up to $100,000, the assets are disregarded for SSI purposes, as well. Normally, that much money would disqualify a beneficiary from both SSI and Medi-Cal, which are benefits which a disabled person might need for their daily life.
An ABLE account may be especially useful when used in conjunction with a special needs trust for the beneficiary. If the ABLE account is used to pay for basic living expenses, it won’t have an adverse impact on the beneficiary’s SSI eligibility. The funds in the SNT could be used to pay for other expenses.
If you or your client have a loved one who became disabled by age 26, an ABLE account may be the best choice.
Litherland, Kennedy & Associates, APC, Attorneys at Law are members of the American Academy of Estate Planning Attorneys. If you would like to learn more about the importance of estate planning, we invite you to attend one of our free estate planning seminars.