Estate Planning Newsletter – September 2015

THE NEW “ABLE” ACCOUNT

     Congress has passed legislation allowing the establishment of bank accounts called ABLE (Achieving a Better Life Experience) accounts. These accounts are designed to create easier ways for individuals with disabilities to create tax-free savings accounts.  The ABLE accounts allow contributions by any person, including the account beneficiary (who is the disabled person), their family or friends. Contributions to the account are not tax deductible, but income earned by the accounts will not be taxed.  The amounts in an ABLE account will not penalize an individual seeking SSI, Medicaid, or other public benefits. The accounts are only available to people who became disabled before age 26. The limit for total annual contributions by all individuals to the account is $14,000.00, adjusted annually for inflation.

     The money in the accounts can only be used to pay for “qualified disability expense.” IRS and Treasury regulations will be issued to determine how these accounts will be administered and what exactly counts as a “qualified disability expense.” The language in the statute indicates the money in the accounts can be used for education; housing; transportation; employment training and support; assistive technology and personal support services; health; prevention and wellness; financial management and administrative expenses; legal fees; expenses for oversight and monitoring; funeral and burial expenses.  Federal regulations have been proposed by the IRS and are expected to be final by the end of 2015.

     Each state is also responsible for establishing and operating a program regarding the ABLE accounts.  Tennessee approved the establishment of ABLE accounts in May. After federal regulations are approved, the State of Tennessee Treasury Department also will issue state regulations.

     ABLE accounts are not expected to be available until after January 1, 2016. The accounts will also have a total limit on the amount in the account, set by the State of Tennessee. But if the account exceeds $100,000.00, the beneficiary would lose SSI benefits.  The biggest difference between ABLE accounts, as opposed to Special Needs Trusts, for planning by families of disabled persons, is that at the beneficiary’s death, the amount remaining in the ABLE account is subject to Medicaid payback provisions.

    PLANNING RECOMMENDATION:  ABLE accounts can be used in ways similar to Special Needs Trusts, although Special Needs Trusts are still valuable tools to plan for an inheritance for a disabled individual.  Also the limit on the amount in the ABLE account could prohibit many inheritances, and the accounts can only hold cash. These accounts will be most beneficial to hold income earned by disabled persons.