On December 19, 2014, the “Achieving a Better Life Experience Act of 2014” (ABLE ACT 2014) was enacted. The purpose of the Act is to permit families to save private funds to help support some individuals with disabilities to maintain health, independence and quality of life. To qualify for an ABLE account, an individual would have to have been determined disabled before their 26th birthday. ABLE accounts could be used to help pay for “qualified disability expenses”, such as medical care, dental care, education, job training, housing and transportation, without any impact on the disabled person’s eligibility for public benefits, such as SSI and Medicaid. ABLE accounts will be designed to supplement, but not replace benefits provided through private insurance, Medicaid, SSI employment or other sources.
Starting in 2015, amounts in ABLE accounts will not be subject to the $2,000 maximum of assets that qualifying disabled people would otherwise be required to maintain to establish and remain eligible for SSI and Medicaid. In addition, while ABLE accounts may not exceed $100,000 in value for SSI recipients, there is no similar cap for Medicaid recipients.
The total amount that can be contributed in any given year to an ABLE account is the current gift tax exemption amount, of $14,000.00. The disabled person’s own assets or assets of a third party can be used to fund the ABLE account. Transfers in excess of such an amount could cause disqualification of the ABLE Act account. Distributions from disqualified accounts or for non- “qualified disability expenses”, would be taxable to the beneficiary and subject to a 10% penalty. States can recover from ABLE Act accounts after the death of the disabled beneficiary, but recovery will be limited to Medicaid expenses of the disabled person incurred after the date the ABLE Act account was established.
The first ABLE Act accounts will not likely be available until well into 2015, after needed regulations are promulgated and state procedures established governing the creation of the accounts. States are not required to establish or administer their own ABLE Act Account programs. It is also not known how many states will embrace the Act, since there are significant administrative and reporting requirements imposed on those states that establish ABLE programs. When fully implemented, the ABLE Act accounts will likely work in much the same way as 529 Education Savings Plan Accounts. Since states are not required to establish their own ABLE Act account programs, it’s not clear whether Virginia will do so.