It may be a bit late to the party, but Texas has promised to make ABLE accounts available in 2018. That is a good thing.
The ABLE Act – Achieving a Better Life Experience Act of 2014 – allows a person who was disabled before reaching age 26 to set aside funds for his or her personal use. The great thing about ABLE is that the account funds do not count as resources, or the account distributions as income, for purposes of means-tested programs. In other words, this is a way for an individual to accumulate and spend money that won’t disqualify him or her from Medicaid or SSI programs.
An ABLE account gives an individual the ability to own a bank account with an appreciable amount of money. Like a 529, the income earned to the account is not taxed.
The Federal government set up the program, and then left it up to each state to pass legislation to approve an implement it. Texas did that in 2015. The regulations are supposed to be finalized in 2018.
In the meantime, Texans can set up an ABLE account in one of the 22 states that have already implemented it. When Texas is up and running, that out-of-state account can be transferred to Texas.
A qualified ABLE account can be set up by the individual or by a third-party. Only one ABLE account is permitted to the individual. The total contribution for 2018 is limited to $15,000 – the amount is tied to the gift tax annual exclusion amount. The total amount in a Texas account cannot exceed $370,000. That amount is tied to the maximum contribution allowed by a state in a 529 account.
So who can contribute to an ABLE account? You can. The contribution can be third-party money, money from a relative, money from the individual, or even money from a trustee.
The qualification for an individual is very specific – the individual must have a disability that makes him or her eligible for SSI or SSDI AND must have been diagnosed before the age 26. The age of diagnosis is critical – which might push parents or relatives to actively pursue getting the diagnosis.
The funds in the account can only be used for qualified disability purposes. That list is pretty broad, and includes housing, education and transportation. The Social Security Administration sets the rules on what types of uses are permitted. It calls an acceptable use a “Qualified Disability Expense.”
The only real drawback for an ABLE account is the Medicaid payback – when the individual dies, the state can recover any remaining funds to repay it for money it paid out under Medicaid. But, hey – that may be acceptable to anyone who wants to raise the living standard of a disabled individual.
There is more good news. In Texas, a judge in a litigation case or a guardian can now create and invest in an ABLE account.
The ABLE Act – it’s about time.
Hammerle Finley Law Firm. Give us a call. We can help.
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The information contained in this article is general information only and does not constitute legal advice.