Legislative Updates

Legislative Updates

ABLE Act of 2014

The ABLE Act of 2014 (Achieving a Better Life Experience) creates an account for persons with special needs whose purpose is to provide a tax-free savings account that covers qualified expenses such as education, housing, and transportation. The bill does not replace benefits provided through private insurance, the Medi-Cal program, SSI, the beneficiary’s employment, and other sources. It does not replace the need for and benefits provided by a Special Needs and other types of Trusts used in planning for the beneficiary, which we will discuss. There are specific limitations that must be complied with or government benefits may be jeopardized. The 2018 deposit limit has been increased to $15,000 per year.

Comparison of Special Needs Trusts and ABLE Accounts

Created and Managed by

Special Needs Trust
Family, Friends, Guardians, Trustees, Caregivers

ABLE Act Account
Families and Qualified Individuals

Who can serve as a Trustee

Special Needs Trust
Family, Friends, Advisors, Institutions appointed by creators of the trust, Court

ABLE Act Account
No Trustee. Custodian of account

Hire/Fire/Change Trustee

Special Needs Trust
Yes

ABLE Act Account
Not applicable – Program Administrator

Successor Trustees

Special Needs Trust
Appointed by Trust creator (Grantor)

ABLE Act Account
Not applicable – Program Administrator

Authority to remove Trustee

Special Needs Trust
Yes

ABLE Act Account
No – Program Administrator

Authority to make investment decisions

Special Needs Trust
Trustee has sole authority. Beneficiary may not have any authority.

ABLE Act Account
Program Administrator

Control Investment Risk

Special Needs Trust
Family has authority as Trustee

ABLE Act Account
Program Administrator
Range of available investment accounts determined by States

Length of Time to Withdraw Funds

Special Needs Trust
Immediate by Trustee

ABLE Act Account
Must be approved by managing agency unless there is a Debit Card, then bill is submitted for approval.

Distribution of remaining trust funds after death of beneficiary

Special Needs Trust
Creators of Trust (Grantors) decide who receives trust remainder

ABLE Act Account
Payback to Medicaid first, then balance to heirs

Tax Penalties Non-Qualified Withdrawals

Special Needs Trust
None

ABLE Act Account
Earning Portion subject to regular income tax, 10% penalty and possible State penalty

Who Qualifies

Special Needs Trust
May be established for anyone

ABLE Act Account
Person diagnosed prior to age 26* and receiving SSI or DI under Title II of SS or has an impairment that will result in death or last at least 12 months or is blind and provides a diagnosis by doctor. Eligibility for ABLE does not mean eligibility for SSI or Medicaid.

Authority to change who receives funds after death of beneficiary

Special Needs Trust
Yes, Trust Grantors during their lifetime.

ABLE Act Account
Subject to Payback

Payback to Medicaid after death of beneficiary

Special Needs Trust
No

ABLE Act Account
Yes – The amount is based on payments after the ABLE acct begins

Ability to choose Financial Advisor

Special Needs Trust
Yes

ABLE Act Account
No – investments limited by States

Administrative Fees charged

Special Needs Trust
Family members usually would not charge. Professional managers and institutions have regulated fees

ABLE Act Account
Yes

Unique Benefit of Trust

Special Needs Trust
Family retains complete control

ABLE Act Account
Provides an option to put aside funds in a tax free accumulation and distribution account without jeopardizing government benefit eligibility as long as the account is in compliance.

Maximum Annual Deposit

Special Needs Trust
Unlimited

ABLE Act Account
$14,000 – If amount is exceeded, it is no longer considered an ABLE Account. Assets are a “countable resource.”

Maximum Total without jeopardizing SSI eligibility

Special Needs Trust
Unlimited

ABLE Act Account
$100,000 – If exceeded SSI is suspended. Reinstated if below acct max with no reapplication.

Maximum Total without jeopardizing Medicaid eligibility

Special Needs Trust
Unlimited

ABLE Act Account
Account must be below State 529 plan max for eligibility
Arizona – $421,000

When Can It Be Created

Special Needs Trust
Any time prior to age 65

ABLE Act Account
Anytime as long as the disability began prior to age 26

Taxation

Special Needs Trust
Files 1041 Income Tax return for Trusts.

ABLE Act Account
Tax Free earnings and distributions

Transferring Assets

Special Needs Trust
Remainderman named to receive assets after death of the beneficiary

ABLE Act Account
Funds may be “rolled” over to another account or to another family member who qualifies.

What can funds be used for

Special Needs Trust
Supplemental needs that do not duplicate government benefits

ABLE Act Account
Qualified expenses ie education, housing, and transportation

Who Can Give Funds

Special Needs Trust
Anyone except the beneficiary (person with special needs)

ABLE Act Account
Anyone

Tax Deductible Deposits

Special Needs Trust
No

ABLE Act Account
No

Number of Trusts/Accounts per Individual

Special Needs Trust
Unlimited

ABLE Act Account
One – Aggregate Contributions are subject to State limits for 529

Assets Allowed

Special Needs Trust
Anything

ABLE Act Account
Cash or rollovers from another family member’s account who also qualifies.

Income Tax

Special Needs Trust
A special needs trust can often qualify as a
Qualified Disability Trust – and many distributions are deductible at the beneficiaries tax level
– Requires tax return for trust and beneficiary.

If a 3rd party special needs trust is drafted as a Qualified Disability Trust

  • It has a full $4,000 exemption in 2015, & all distributions from the Trust for the benefit of the beneficiary are taxed to the beneficiary, AND
  • The beneficiary has his/her own, a 2nd exemption of $4,000, & a standard deduction in 2015 of $6,300.
  • A 3rd party special needs trust can shelter a total of $14,300 in 2015 of taxable income.

ABLE Act Account
Tax Free – An ABLE Account with $100,000 (maximum not to lose SSI) would need to earn over 14% for any income tax benefit over a 3rd party SNT.

  • Keep in mind the ABLE Account is subject to a Medicaid Payback.

Three revisions have been proposed for the ABLE Act. Visit ablernc.org for current status.

  1. *Increase age from 26 to 46 to open an account
  2. Rollover funds from a 529 plan
  3. Increase annual maximum deposit from $14,000 to $26,770 ($11,770 is the current poverty level income) if the person is employed

States with Available Programs for Out of State Residents

  • Alabama
  • Minnesota
  • Pennsylvania
  • Alaska
  • Nebraska
  • Rhode Island
  • Illinois
  • Nevada
  • Tennessee*
  • Iowa
  • North Carolina
  • Virginia
  • Kansas
  • Ohio
  • Michigan
  • Oregon

*No Debit Card

States with Available Programs for Residents Only

  • Florida
  • Kentucky
  • Vermont
  • Missouri

ABLE Act Changes of 2018

The following is a brief summary of changes already made and those being implemented  over the course of the year.

  • Annual Contribution Limit: The annual contribution limit is periodically adjusted for inflation.  As a result, for the 2018 tax year, the annual contribution is set at $15,000 (previously $14,000). 
  • Saver’s Tax Credit: ABLE account owners who choose to contribute into their own ABLE account, as opposed to just contributions made by outside contributors, such as friends and family, may now be eligible to take advantage of the Retirement Savings Contributions Tax Credit (otherwise known as the Saver’s Credit). There are additional requirements that must be met in order to qualify for the Saver’s Credit. This is a non-refundable credit.
  • ABLE Financial Planning Act: Provided that the beneficiary is the same individual on both accounts (or a family member of the 529 College Savings account beneficiary as defined in the law), it is now allowable to transfer funds in a 529 college savings account to an ABLE account without incurring any tax or penalty.
  • The funds rolled over from the 529 college savings account to an ABLE account are subject to the annual contribution limit and thus capped at $15,000 for any given tax year (provided that no other contributions into the account have been made during that tax year).
  • ABLE to Work Act: ABLE account owners who have employment may be eligible to contribute above the $15,000 annual contribution limit (possibly up to an additional $12,060 depending on the gross income of the account owner).  The contributions above the $15,000 annual contribution limit would be limited to contributions made specifically by the account owner into their ABLE account.

The ABLE National Resource Center (ANRC) will be closely monitoring these changes to ensure that they are implemented in a manner that provides maximum benefit to individuals with disabilities and their families.  We encourage you to visit the ANRC website (www.ablenrc.org) for further information and updates related to these changes.

The Disabled Military Child Protection Act

The new law is a major victory for military parents of children with special needs because it allows them to provide a survivor benefit and also keep their child qualified for various government benefit programs.

Special Needs Trust Fairness Act

The amendment simply adds a phrase allowing the individual to establish her own first-party special needs trust (“established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, or a court”). This small change has big consequences. Disabled beneficiaries with mental capacity to establish their own trust no longer need to seek the assistance of their parents, grandparents, guardians, or the court. They may now act on their own behalf to establish a first-party special needs trust and fund it with their own assets, without any undue legal difficulties.