The Pros and Cons of an ABLE Account

Do you or someone you love have physical or mental special needs? Do you or they receive any government assistance? If yes, then you need to know about ABLE Accounts.

The ABLE Act

ABLE Accounts are tax-advantaged savings accounts under Section 529 of the federal tax code and are available to individuals with disabilities and their families. The law creating ABLE Accounts is formally known as the Achieving a Better Life Experience Act of 2014.

The Act permits “qualified individuals” to have tax-free savings accounts allowing them to save up to $100,000 without affecting their eligibility for Supplemental Security Income (SSI) and other means-tested government programs, such as Medicaid. If an ABLE Account balance exceeds $100,000, SSI benefits are suspended but Medicaid benefits continue.

Upsides and Downsides

This is definitely good news, and the upsides outweigh the downsides for many eligible to take advantage of this opportunity.

Let’s look at the upsides first:

• A qualified individual can create his or her own ABLE Account with his or her own money rather than depending on relatives or the court system to set up a “first-party” special needs trust.
• A person with disabilities can oversee the funds in the ABLE Account, giving them more independence and affording easier access to the funds.
• The ABLE Account funds grow tax-free with no gift tax liabilities.
• Regardless of where you live and whether your state has enacted its own ABLE program, you can enroll in any state’s program.

All told, the ABLE Act is groundbreaking legislation: it’s the first time any public policy has acknowledged the substantial expense of living with a disability or caring for a loved one who is disabled. Under the Act, a “qualified disability expense” is any expense related to the designated beneficiary due to living with disabilities. This includes those costs related to rearing a child with significant disabilities or a working age adult with disabilities. These costs include accessible housing and transportation, personal assistance services, assistive technology and healthcare expenses that are not covered under an insurance policy, Medicaid or Medicare.

In practical terms, an ABLE Account supplements—rather than supplants—the benefits of private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.

Okay, now let’s look at the downsides of ABLE Accounts:

• To qualify, a person must have a disability that occurred before age 26.
• A person can only have one ABLE account.
• Annual contributions are capped at the federal annual gift tax exclusion, now at $14,000.
• Any funds leftover in the account after the beneficiary passes away are required to be first applied to repay Medicaid expenses incurred on his or her behalf.
• With the exception of Ohio, all other states are still in the process of setting up rules for financial institutions to offer ABLE Accounts (but anyone can open an account in the Buckeye State!).

Final Thoughts

While the ABLE Act gives those with special needs another means of assistance, not everyone will qualify. Accordingly, first- and third-party special needs trusts should still be considered when contributions exceed the Act’s limits or to avoid a Medicaid payback.

© 2016 Integrity Marketing Solutions. All Rights Reserved.

One Size Does Not Fit All

One of the great attributes of “Americans” is our “can do” spirit. We accept challenges and give it the “old college try” as we try to figure things out for ourselves. Sure we can ask for help, but we want to see if we can do it on our own first.

Reality TV Meets Real Life

We love watching those reality television shows about fixing up old homes. It strikes such a resonant chord with viewers and advertisers alike. We all want to see the finished product, and we expect it to be bigger and better that anything before. Who cannot wait to see the happy homeowners as they tour their remodeled home? These home shows give us the confidence and the knowledge to try things for ourselves, like re-tiling the kitchen floor or putting together a bookshelf.

Leave DIY to Home Improvements

While this Do-It-Yourself (DIY) approach may work in many situations, like home improvements, there are other situations best left to experts. Sure, you jump online and learn about hip replacement surgery or vacationing in Switzerland, but you probably should not do your own hip replacement surgery or pilot an airliner to Geneva unless you are specifically trained and qualified to do so. So it is with estate planning. It can be hazardous to you, your loved ones and your wealth to DIY your own estate plan.

Penny Wise and Dollar Foolish

If you DIY your estate plan, there is no 24-hour service your family can call when a mistake is discovered. There is no on-call tradesman who can bail them out if you missed something in your will or trust after you die. Botched estate planning documents cannot be fixed by making a call or watching a video. Once you pass away there are no “will make-overs” or “trust emergencies.” Your family and loved ones will be stuck with whatever you have written.

Costly Consequences

If there are any problems with your DIY estate plan, likely a probate judge will decide how it will play out and it is rarely what you would have wanted. Here are just a few of the mistakes DIY estate planners make when trying to create their own estate plans without the counsel of an experienced estate planning attorney.

• Failure to list out assets and online accounts and passwords;
• Failure to identify the location of estate planning documents;
• Failure to designate a guardian for minor children;
• Failure to designate the recipients of family heirlooms;
• Failure to update the estate plan with life changes, like a child’s birth or divorce;
• Failure to properly designate beneficiaries for retirement, insurance and other financial accounts;
• Failure to designate secondary beneficiaries;
• Failure to designate an alternative trustee or executor;
• Failure to properly “fund” trusts with assets while living or by beneficiary designations at death, and last, but certainly not least,
• NO ESTATE PLAN!

So, for your benefit and that of your loved ones, do not DIY your estate plan.

© 2016 Integrity Marketing Solutions. All Rights Reserved.