Pennsylvania ABLE program heralded as a success

One of the problems affecting disabled persons in the Medicaid and Supplemental Security (SSI) systems has been extreme limitations on the amount they can carry in savings and still continue to qualify. A national program adopted by Pennsylvania in 2014 helps to deal with this to some extent particularly as it affects individuals who became disabled before the age of 26. The ABLE — or Achieving a Better Life Experience Act — is a federal law which allowed states to establish their own programs. Pennsylvania’s has been heralded as a success although, from the beginning, the federal age limitation for onset of disability has been an issue. Annual contributions into accounts are limited but funds can accumulate over time up to $100,000.

ABLE accounts are established under a savings program administered by the Pennsylvania Treasury and allow deposits up to $15,000 a year (the amount of the federal gift tax exclusion). Parents wanting to contribute funds to benefit their disabled children can do so as well as other individual contributors. For some who qualify, ABLE accounts could provide a less complicated although more limited alternative to the process of establishing and maintaining a supplemental needs trust.

These accounts are especially relevant for those developmentally disabled individuals who want to be able to save but are, by definition, limited both in their earning potential and their limited income. Federal income and asset guidelines are especially strict for those who receive SSI due to their disability and limited income. This allows some additional flexibility.

Anyone can contribute to an ABLE account but it must be established and owned by the disabled individual or a parent or fiduciary acting on behalf of the disabled individual if that person is a minor or unable to act. The maximum total contribution from all sources including the disabled individual now is $15,000 per year. It is an attempt to provide sustainable funding and options for those with disabilities through accounts to which both disabled individuals and others can contribute recognizing that disabled individuals who receive SSI and Medicaid would not generally own liquid assets in excess of $2,000 in their own name.

ABLE is a new tool in a toolbox that currently includes third party, pooled and D4A supplemental needs trusts. Here is what you need to know.

Benefits

• Best for smaller funds for those who become disabled before age 26. If a disabled person on SSI or Medicaid now receives a small inheritance, for instance, he or she under prior law could lose benefits unless the funds are spent in the month of receipt or a D4A trust is established. If the funds are $15,000 or less and the recipient became disabled before age 26, under ABLE, these could be potentially placed in an ABLE account. Also, if a developmentally disabled person were to receive some funds for limited work, an ABLE account might be used to prevent personal funds from exceeding the $2,000 limit in account and thereby avoid loss of benefits.

• Income is not taxed provided distributions are made for qualified disability expenses. As with traditional 529 plans which are for educational expenses and not taxed on distribution provided funds are used for the intended purpose, increase in value in 529A plans under the

ABLE Act are not taxable on distribution if used for qualified disability expenses.

Limitations

• ABLE, as passed, applies only to those diagnosed as severely disabled by age of 26. As indicated, the ABLE Act does not apply to individuals whose disabilities began after reaching their 26th birthday.

• There can be only one ABLE account per beneficiary. You can set up one but only one ABLE account per beneficiary.

• Contributions to an ABLE account cannot exceed $15,000 per year total. The amount that can be contributed to an ABLE account is $15,000 per year total from all sources. This means that, for instance, ABLE would be unlikely to replace D4A trusts set up to hold most funds received from litigation. A child severely injured in an accident would still need a D4A supplemental needs trust to hold funds from a settlement or judgment.

• ABLE accounts come with specific requirements that must be followed in order to maintain their status as ABLE accounts. If, as only one example, total contribution of more than $15,000 in a year is made, the account could lose its status as an ABLE account.

More information is available at www.paable.gov.

Janet Colliton is a Certified Elder Law Attorney and limits her practice to elder law, estate planning and administration, life care and special needs with offices at 790 East Market St., Suite 250, West Chester, 610-436-6674, colliton@ collitonlaw.com. She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.