Many disabled children face disheartening experiences when they become adults. Public and private resources offer a variety of therapeutic services, summer recreation camps, and adaptive educational accommodations to disabled children, but many of those benefits and abruptly at adulthood. A federal tax law known as the ABLE Act of 2014 authorizes states to establish programs to encourage private funding of special accounts that may eventually soften the blow for some of these disabled new adults.
The 113th Congress established Internal Revenue Code Section 529A when it enacted the “Achieving a Better Life Experience Act of 2014” or the “ABLE Act of 2014.” The legislation adapted concepts from Internal Revenue Code Section 529, which offers popular tax incentives for families to save college tuition funds known as “529 plans.”
A taxpayer can establish and invest money in a 529 plan to pay certain educational expenses for any person, and the investment produces tax-free earnings much like an IRA or other tax-deferred savings plan. Unlike an IRA, however, a 529 plan to make tax-free distributions to pay qualified educational expenses. The 529 plan belongs to the person that establishes it, and the person can withdraw all of the funds at any time, for any reason, but the person must pay income taxes and a 10% penalty on the earnings portion of the nonqualified distribution.
The ABLE Act authorizes the state legislatures to create administrative agencies to administer and regulate ABLE accounts. The Indiana General Assembly enacted SEA 11 in 2016 to establish Indiana’s Achieving a Better Life Experience (ABLE) Program. Indiana is assembling its ABLE Board of the Authority in 2017, which will issue regulations and contract with a financial institution to administer an ABLE endowment fund and an ABLE program account. Qualified Hoosier beneficiaries can open ABLE accounts in other states that have already established ABLE endowments, such as Ohio’s STABLE program while Indiana is organizing its program.
A qualified ABLE account beneficiary must have been blind or sufficiently disabled before age 26 to qualify for Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits (CDB), or disabled widow’s or widower’s benefits (DWB). There can only be one ABLE account per beneficiary, and only the beneficiary, the beneficiary’s parent, the beneficiary’s legal guardian, or an agent acting under the beneficiary’s power of attorney can create the account. ABLE account distributions can be used to pay “qualified disability expenses,” which may include expenses for education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, oversight and monitoring, funeral and burial, and other expenses that the IRS may approve in the future.
ABLE accounts offer important advantages that supplement public assistance benefits. One of most exciting advantages is that qualified disability expenses can include in-kind support and maintenance payments that would ordinarily diminish the beneficiary’s SSI benefits. Thus, a beneficiary can use ABLE funds to pay expenses that would otherwise consume SSI benefits, and the beneficiary can use the SSI benefits to pay for things that the beneficiary would not otherwise be able to afford.
An ABLE account cannot receive a total value of annual contributions worth more than the federal annual gift tax exclusion value ($14,000 in 2017). If an ABLE account balance reaches $100,000, the account beneficiary’s SSI benefits will terminate. The maximum value for an Indiana ABLE account is $298,770. An ABLE account is payable to the state upon the beneficiary’s death up to the total value of the state’s payment of Medicaid benefits for the beneficiary, and then any remaining balance may be payable to the contingent beneficiaries designated by the person establishing the account in the unlikely event that there is a remaining balance.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel, the American Bar Foundation, and the Indiana Bar Foundation; and he was the 2014-15 President of the Indiana State Bar Association.
Find more information about these and other topics at www.HawkinsLaw.com, add us to your Google+ circles, like us on Facebook, follow us on Twitter @HawkinsLawPC or call us at 812-268-8777. © Copyright 2017 Hawkins Law PC. All rights reserved.