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Elder Planning Isn't Just For The Elderly

The NY ABLE ACT: A Primer

For many with disabilities, the ability to access savings, whether it be theirs or a family member's, without disrupting their eligibility for government programs such as Medicaid and SSI (Supplemental Social Security Income), has been a challenge for decades. Fortunately, as a result of the passage of a federal law in 2014 known as the Achieving a Better Life Experience Act of 2014 ("ABLE Act"), which created Section 529A of the Internal Revenue Code (IRC), those with disabilities and the members of their families may now create a special saving's account that is similar in some ways to a 529 College Savings Plan.

However, ABLE Act accounts are subject to special rules and limitations, and are very different from the rules that govern Special Needs Trusts ("SNT"). They should not be considered as a substitute for the use of an SNT, which in most instances has broader uses and less financial limitations than an ABLE Act account.

The NY ABLE Act became effective on April 1, 2016. As of the writing of this article, however, the program is not yet available for use by eligible individuals. It is anticipated to be available late in 2016.

The stated goal of the ABLE Act is to encourage individuals with disabilities and their families to save private funds so as to help the disabled to maintain health, independence and quality of life, while at the same time being exempt for federal tax on the account's earnings, and not supplanting or disqualifying the disabled person from the benefits of Medicaid and SSI. 

The ABLE Act can be used to pay for the qualified disability expenses of the account beneficiary. These expenses must be related to the individual's blindness or disability and may include education, housing (may reduce SSI benefits), transportation, employment training and support, assistive technology and personal support services, health, financial management, legal fees, funeral and burial expenses and other expenses permitted by the U.S. Treasury.

In order to participate in the NY ABLE Act program, the following must be complied with:

  • The ABLE account owner must be the beneficiary of the account or a parent, legal guardian on representative of the beneficiary;
  • Only one ABLE account per beneficiary is permitted;
  • Annual contributions to the ABLE account are capped at fourteen thousand ($14,000) dollars per year;
  • For purposes of eligibility for SSI, $100,000 is disregarded; and
  • Funds contributed must be cash, and can't be used as security for a loan.

If the above are complied with, then the funds in the account will not impact one's eligibility for Medicaid or SSI. However, the NY ABLE Act has a payback provision allowing Medicaid to recoup Medicaid benefits properly paid to or for the account holder to be paid from the ABLE Act account upon his or her death. This is a significant disadvantage over the ability of a family member or a third party to create and fund a third party SNT for the disabled individual which does not require a "payback" provision. Additionally, distributions for items other than the "qualified" disability expenses as above described will be included in gross income and taxable. 

Once the NY ABLE Act becomes fully implemented and individuals are able to open said ABLE Accounts in New York, I am confident that we will learn more about the intricacies of the accounts and their impact on Medicaid and/or SSI benefits.

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