ABLE accounts for the disabled come to Pa.

Changes in the law adopted at the federal level can take awhile to be implemented in the states. This was the case with the federal ABLE, Achieving a Better Life Experience, Act adopted by the federal government at the end of 2015 and just now, as of April 18, 2016, becoming law in Pennsylvania. The ABLE program is expected to be available for the opening of new accounts in the fourth quarter of 2016. Both Pennsylvania residents and residents of other states may apply.

The new Pennsylvania law allows individuals who became severely disabled before reaching age 26 to establish ABLE tax free savings accounts without losing their eligibility for government means tested programs including Medicaid and SSI.

Without the change in the law, for instance, these SSI recipients in Pennsylvania generally speaking could not have more than $2,000 in the bank and liquid assets without losing benefits.

This can cause severe hardship in cases where funds are needed for transportation, housing, education, personal support, employment training, legal and financial assistance and other expenses. While trusts known as third party special needs trusts can be established with the funds of other persons for a disabled person, the only exceptions for disabled persons using their own funds has been establishment of a specialized trust known as a d(4)(A) or Payback Trust which is complicated to establish and may be out of reach of the individual for many reasons including limitations on who can establish such a trust or another arrangement known as a pooled trust.

The parties establishing a d(4)(A) trust are currently limited to parents, grandparents,

a guardian or the Court. ABLE relaxes this restriction for some individuals and for some severely limited amounts but is still a step in the right direction.

ABLE has its own restrictions. As previously stated, it is only available to those who became disabled prior to age 26. Severely disabled persons who became disabled by illness or injury after age 26 cannot establish an ABLE account.

The annual contribution into the account cannot exceed the federal annual exclusionary amount for gift tax purposes (currently $14,000). Also, you cannot establish more than one ABLE account to avoid this limitation. If the account balance in total exceeds $100,000 SSI would be suspended but Medicaid could continue. With a total annual contribution

limit at $14,000 or slightly higher over time, it is unlikely the $100,000 limit would be reached any time soon. The restriction on amount also essentially disqualifies ABLE in cases where a large personal injury settlement is received for a younger person who has been injured in an accident. There only a d(4)A trust would shelter the funds payable to the disabled person unless contribution to a pooled trust is an option.

ABLE accounts, like 529 accounts which are established for savings for college, grow tax free. Under the Pennsylvania law, an ABLE account will not be subject to attachment, levy or execution by any creditor of a contributor, account owner or designated beneficiary. In other words it receives creditor protection generally, a useful term. ABLE was initially modeled after 529 accounts but, having been established for entirely different purposes, it is likely

that the two will become less and less similar.

• Where does ABLE help? ABLE is likely to be most useful for small amounts that could otherwise cause a person disabled before age 26 to lose all Medicaid or SSI benefits. For instance sometimes grandparents might unknowingly provide a small inheritance to a grandchild in their Will. If the funds are $14,000 or less and the recipient became disabled before age 26, under ABLE, these could be potentially placed in an ABLE account. Also, if a person who became disabled before age 26 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.

• Convenience and Simplicity. The ABLE account setup should be simpler and easier to access and administer than provisions relating to most special

needs trusts.

ABLE is a new tool in a toolbox that currently includes third party, pooled and D4A supplemental needs trusts. There is much more to learn about these accounts but the law is one small step forward.