New Planning Tool for Parents of Special Needs Children

There is a new tool to help children with special needs that is similar to the popular 529 College Savings Plans.  A challenge for many special needs parents is providing for their children but ensuring the child doesn’t lose their SSI and Medicaid benefits.  ABLE Accounts are a new tool to save for a special needs child’s future care without jeopardizing those benefits.  Generally, if a disabled person has more than $2,000 in savings or other assets, they lose Medicaid and SSI benefits.  One solution is a special needs trust but they are costly to set up and maintain.  ABLE accounts are designed to be cheaper, simpler option.

What is the ABLE Law?

ABLE, which stands for the Achieving a Better Life Experience Act, was the kitchen table idea of a group of parents in Northern Virginia.  The parents wanted a simpler cheaper way to save for their children with down syndrome’s future care.  As a result of their efforts, the ABLE Act was passed by Congress in 2014.  Under the federal law, people with disabilities can open special accounts, where they can save up to $100,000 without risking their SSI, Medicaid or other government programs.

The ABLE Act requires each state to enact legislation on how and when ABLE accounts will be available in that state.  Virginia enacted a law in March 2015 that authorized the Virginia College Savings Plan (Virginia 529) to create a savings plan for people with disabilities.  Virginia 529 estimates the accounts will be available at the earliest by the end of 2016.

What are the Key Features of an ABLE Account in Virginia?

  1. An eligible person is someone who is or becomes disabled before age 26 and receives Social Security Disability Income or files a disability certification under IRS rules.
  2. Earnings on contributions to ABLE accounts are exempt from federal income taxation.
  3. Earnings on contributions to ABLE accounts are exempt from Virginia State income taxation.
  4. Yearly contributions are capped at the annual gift-tax exclusion of $14,000.
  5. If the assets in the ABLE account reach $100,000 and the beneficiary is receiving SSI benefits then the SSI will be suspended until the assets drop below $100,000.  Once the assets in the ABLE drop below $100,000, the SSI benefits will resume.

What are the Disadvantages of an ABLE Account? 

The biggest disadvantage of ABLE accounts is repayment to Medicaid.  When the disabled individual dies, any assets remaining in the ABLE account are used to pay back Medicaid for the amounts expended by Medicaid for the care of the disabled individual after the creation of the ABLE account.  Typically, funds in a valid special needs trust do not have to be repaid to Medicaid following the death of the disabled individual.

ABLE accounts are a new tool and the government regulations of these accounts is still evolving.  They are miracle drug for the estate planning challenges of special needs children.  They do not replace the role of special needs trusts.  They are simply another tool for families to provide education, housing, training, assistive technology, or other expenses for their special needs child.

Read More in the New York Times: A Closer Look at 529 Able Accounts

If you need help with estate planning in Chesterfield, Colonial Heights, Dinwiddie, Hopewell, Petersburg, Prince George, or Sussex. Give us a call at (804) 668-5327 or email us at Contact@paulperduelaw.com to schedule a consultation.

**This material is for Information Purposes ONLY and should not be construed as legal advice and does NOT create a legal relationship with Paul Perdue Attorneys PLLC.