If you have a family member with special needs, you should consider creating an ABLE account as a powerful tool to help provide for his or her financial future. Since many government benefit programs for individuals with special needs are based on a means-tested standard, it’s important to create structures that provide for your loved one with special needs while not jeopardizing their eligibility for all available federal assistance.

The Basics of ABLE Accounts

In 2014, Congress passed the Achieving a Better Life Experience Act (the ABLE Act) that allows a person with disabilities to hold a tax-free savings account that can be used to pay for disability-related expenses during that person’s lifetime. In general, the funds held in an ABLE account do not affect the individual’s eligibility for means-tested government benefit programs unless those funds exceed certain limits.

The basic guidelines state that ABLE accounts can only be held by people who had an onset of their disability before the age of 26, and each person is limited to one ABLE account. There is no limit on how many people can contribute to a single ABLE account, but the annual total amount of contributions cannot exceed the IRS gift tax exclusion amount. In 2021, the gift tax amount was maintained at $15,000 per year.

The rules also limit the total amount of funds that can be held in an ABLE account, and more is not necessarily better. If the ABLE account balance exceeds $100,000, the account holder’s Supplemental Security Income (SSI) eligibility is suspended until the balance falls below $100,000 again.

Also, upon the death of the account holder, the remaining funds are to be used to reimburse the state or states in which the account holder received Medicaid services, particularly if these services include “long term support services” as is the case for most people with developmental disabilities.  This is different than a Third Party Special Needs Trust where remaining assets are usually left to other family members.

ABLE Account Funds Can be Used for Many Disability-Related Expenses

The ABLE Act defines which Qualified Disability Expenses (QDEs) can be paid from ABLE account funds. In general, all expenses related to living with a disability or special needs are included including costs that improve the quality of life, independence, and overall health of the individual account holder.

A few examples of items that qualify as disability expenses under the ABLE Act include:

• Housing – from mortgage or rent payments to property taxes and utilities, housing-related expenses have been specifically included as qualified disability expenses under the ABLE Act and will not affect the account holder’s means-tested benefits, nor reduce any SSI payments related to similar needs.
• Transportation – originally the purchase of a vehicle, maintenance costs, titling, vehicle insurance, and registration were allowable expenses for the ABLE account holder if he or she used the vehicle for transportation. Recently this category was expanded to including UBER, LYFT, taxi, bus, and train expenses.
• Education, Employment Training, and Related Support – help the individual find work or expand their education.
• Health Prevention and Wellness – for disability-related expenses and general wellness needs.
• Food – to clarify the ABLE Act policy, in March 2020 the Social Security Administration officially recognized food as a necessary living expense that can be paid with ABLE funds.
• Financial Services – for management and administration.
• Legal Services
• Assistive Technology – devices and services that help an individual with special needs live their best life possible.
• Funeral and Burial Expenses, and
• Other Expenses – as qualified by the Secretary of the Treasury.

You can find more ABLE Act details and definitions on the Social Security Administration webpage.

If You Have Questions or Want to Establish an ABLE Account

This article has only touched on the rules and uses of ABLE accounts. Like most special needs planning, it’s important to understand the laws, rules, and regulations to be sure each phase of your future plan complies with the intricate details necessary to ensure your family member with special needs receives every available benefit for their future wellbeing.

Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at email@rubinlaw.com or call 866-TO-RUBIN.