Here are the important aspects of an “ABLE” account, which is an important new tool in the world of special needs planning:
- Available to any disabled individual who was diagnosed with their condition prior to age 26.
- Tax-free growth.
- The funds can only be used for disability-related expenses.
- The account will not be counted as an available asset in regards to asset-tested government benefit programs (e.g. Medicaid and SSI).
- Upon the death of the disabled individual, the account balance must be paid over to the State as reimbursement for any Medicaid expenses incurred by the State since the account was opened.
- Anyone can contribute funds to the account.
- Total contributions to the account each year cannot exceed the federal annual gift tax exclusion amount (currently $14,000).
- A disabled individual can only have one account.
Please note that these are the features of ABLE accounts in a general sense. You will encounter additional rules and requirements as you consider accounts offered by different states.
To date, there are 18 states that offer these accounts (Connecticut is not yet up-and-running), but the list will gradually grow. Also, all of the 18 states, with the exception of Florida, accept applications from other states. So you can at least start shopping around among the initial 18 states.
Please note that these accounts offer excellent planning options, but they are not a great fit for all disabled individuals. The “payback” feature to the State and the annual contribution limits are big downsides. However, it always helps to have a new tool in the toolbox!
DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship. If you need legal advice, consult with a lawyer instead of a blog.