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Modern Estate Planning Blog

Elder Law & Special Needs Planning

Folsom Special Needs Lawyer: Understanding the Limitations of ABLE Accounts

May 31, 2018

Most people in the disability community have heard about ABLE (Achieving Better Life Experiences) Accounts. If you haven’t, it is similar to a 529 College Savings Plan, but allows tax-free withdrawals to be used for qualified disability expenses. The funds in ABLE accounts are exempt from being counted against the eligibility limits for needs-based government benefits like SSI and Medi-Cal.

ABLE accounts are an excellent tool to help many with disabilities achieve more independence and save for the future. But, it isn’t a replacement for a Special Needs Trust since there are some limitations as listed below.

ABLE Account Limitations

  • Limited to those with disabilities beginning prior to age 26, with required proof of qualifying disability.
  • One ABLE account per disabled individual with a total annual account contribution limitation of $15,000.
  • Lifetime contribution cap at state 529 limits (currently $475,000 in California)
  • Withdrawals must be for qualified disability expenses. There are significant tax penalties for other expenditures.
  • If the account balance grows to $100,000 there will be a loss of SSI benefits.
  • Failure to monitor the annual and lifetime contribution limits can lead to an account being disqualified and the funds being counted by government programs. This could lead to a surprise disqualification from needed benefits.
  • ABLE accounts have a Medi-Cal/Medicaid payback requirement. This means any balance left on termination of the account or death of the beneficiary must be turned over to the State Medi-Cal agency to pay them back for services provided.

That last limitation is the most unfortunate of all of them. That is why many families choose to establish a Special Needs Trust. Other reasons for choosing a Special Needs Trust include:

  • No proof of disability is needed and there are no disability requirements.
  • There are no annual or lifetime contribution limits.
  • They can be used for anything, not just disability related expenses.
  • They can’t be counted by SSI or Medi-Cal.
  • There is no payback clause. If any assets remain in trust, they will go to the family members you choose and not the state.

For all of the reasons above, ABLE accounts integrate with, rather than replace, the Special Needs Trust. For disabled individuals who are able to work part-time and constantly worry about their $2,000 asset limitation, an ABLE account can be used as a savings plan to accumulate up to $15,000 per year. These “savings” accounts could build up to $100,000 without effecting SSI, allowing the disabled individual the opportunity for thoughtful planning for their own benefit.

If you would like to speak to an experienced Special Needs Lawyer who understands all advantages and limitations of the legal tools available, call our Folsom office at (916) 241-9661 and schedule an initial consultation.

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