The ABLE Account: Planning Ahead for Families with Special Needs

Marshal D. Haneisen

As state legislators iron out the details on how The ABLE (Achieving a Better Life Experience) Act will work in Massachusetts, now is the time for families with disabled children to think about planning for the future.

In 2014, Congress passed The ABLE Act, amending Section 529 of the Internal Revenue Service Code. Under this federal law, anyone can place up to $14,000 post-tax annually into an ABLE Account for the benefit of a disabled adult — without jeopardizing the individual's eligibility for public benefits such as Supplemental Security Income (SSI) and Medicaid insurance.

The National Down Syndrome Society advocates for a variety of legislative actions to improve the quality of life for individuals with disabilities, including The ABLE Act. The organization's website provides a high-level overview of the federal ABLE Act provisions. It notes that to be eligible for an ABLE account, the individual with disabilities must meet certain criteria. First, the symptoms of the disability must have occurred before the individual reached the age of 26. Second, the individual must have “marked and severe functional limitations” as a direct result of the disability.

Under the Americans with Disabilities Act, a “person with disabilities” includes anyone who has been, presently is, or is perceived to have “a physical or mental impairment that substantially limits one or more major life activities.” However, for Social Security benefit purposes, a “disabled person” is an individual determined by the Social Security Administration to be unable to engage in substantial gainful activity, which is the ability to make a set amount of money, just over $1,100 per month, said Attorney Meredith H. Greene of Fletcher Tilton, PC, a multi-practice Massachusetts law firm. Greene is an associate in the Trust & Estates, Special Needs, and Elder Law division of the firm.

The ABLE Act provides a savings ability previously unavailable to a disabled person. The growth is tax-free, and some recent changes in the regulation indicate that distributions for food and shelter will not be counted as income, and thereby will not reduce a monthly SSI benefit, Greene said.

There are some drawbacks, she noted. For example, there is a strict limit on the $14,000 that can be saved each year, therefore it is not a realistic tool via which to receive inheritance or life insurance benefits. Furthermore, if the total ABLE account balance exceeds $100,000, any overage will be counted as part of the $2,000 asset limit for Social Security benefits. Any month an individual exceeds the $2,000 limit, that person is not eligible for and will not receive any SSI benefits until assets are back under $2,000. MassHealth (Medicaid) sets a cap of $350,000 on the ABLE Account before the asset is counted and any overage might jeopardize health care coverage.

“All of us in the disability world had really high hopes for the ABLE Act, but the results are watered down. Though it is still a good tool,” Greene said.

Reading the above figures, one might think it is unreasonable for a person with assets to receive any public benefits. However, any investment broker discussing retirement planning will offer charts and grids with estimates on how much a person should have invested by retirement age and how much to save each month to reach that goal. These estimates and savings goals are based on retiring at 55, 65, or older. But an individual with disabilities will likely need supplemental funds perhaps starting as young as 18 years old.

The monthly SSI benefit and Massachusetts contribution are presently about $874, Greene noted. Few people could live on $874 per month. An individual with disabilities might not be capable of working enough hours or at a high enough rate of pay to earn what is needed to cover even the most basic expenses. Furthermore, many employers require a person to work full-time to be eligible for health insurance coverage. Such rules make Medicaid health care coverage a necessity for most individuals with disabilities.

In the article, “Practical Perspectives on the ABLE Act,” Leo Sarkissian, executive director of The Arc of Massachusetts, provides a transcript of an interview with John Nadworny, a member of the Governor's Commission on Developmental Disabilities in Massachusetts. The Commission proposed an initial plan in 2003 that, over the following 11 years, led to the creation, and ultimately Congress' passing of, The ABLE Act in 2014. When Sarkissian asked Nadworny to explain “the most important aspect of the ABLE Act,” Nadworny responded, “I feel the biggest impact of the ABLE Act will be to raise awareness to families that they have to save and plan for their child with a disability.”

Planning for the future

Setting a goal for how much your child will need in the future can be quite complicated to predict.

“When people ask for ballpark goals, I usually tell them to go to a financial planner who has a solid understanding of these rules,” Greene said.

Parents of children with special needs are likely to be saving for their own retirement and the future care and needs of their disabled child. But with ABLE, SSI, SSDI, SNT and more, the acronyms alone can be intimidating.   

“I know it's overwhelming,” Greene explained. “We need to break it down step-by-step.”

Greene gives presentations at Special Education Parent Advisory Council meetings and other groups and agencies on the subject. She is hopeful that by school age, many parents have an understanding of their child's diagnosis, have established plans for meeting the child's medical needs, and are hopefully not overwhelmed with Individual Education Plan meetings.

In her presentations, she lists all the benefits a child will be eligible for if parents take the necessary steps to plan for the future. With careful planning, children can have funds set aside to provide a meaningful quality of life while retaining eligibility to precious benefits. She then points out that without planning, all of those benefits go away and any money saved will have to be exhausted providing for all care and services. Only when the disabled adult has less than $2,000 in assets will he be eligible for assistance. At this point, there is no money set aside for any supplemental needs, entertainment, hobbies, or general quality of life items.

“You need to think of what decisions you will need to make should something happen to you in the next three to five years. Who would be guardian? Who would be trustee?” Greene said.

It's more than money 

These decisions are not simply about money. Parents must also consider who will make the best decisions for the child's home, education, and medical care. Who will make sure she gets to continue her hobbies and maintain precious friendships? Who will remind the child every day how much his mom or dad loved him?

According to Greene, many families are moving toward a co-trustee planning model when establishing a special needs trust. In this situation, a professional co-trustee is paired with a family co-trustee. The professional co-trustee understands the important laws, spending limitations, and accountability requirements, while the family co-trustee “governs from the heart.” Regardless of the financial management planning parents establish, it is important to have someone in your adult child's life monitoring health, safety, and happiness.

How the savings are held varies based on many factors, including how the savings will be funded and if the child is likely to work as an adult. There are a variety of tools for funding future needs, including ABLE accounts and setting up Special Needs Trusts to serve as beneficiaries for life insurance and retirement accounts.

According to Greene, the ABLE account might prove to be great tool for that individual who has the capacity to work part time. If the person is earning $1,000 and is not a spender, he might easily exceed the $2,000 asset limit. Instead of spending simply to spend down assets, he could put the earnings into the ABLE account. Though the details of the rules are still being worked out by the legislature, presumably, if the child has capacity, he or she can have access to the account, but if not, the parent can control the funds.

“We want to see how this shakes out,” said Greene, who is hoping to see final implementation of the ABLE Act in Massachusetts by 2017.