Tax Free Savings for the College and Disability Needs of the Blind and Disabled.

On January 1, 2016, many blind and disabled residents of California will become eligible to establish tax free accounts under the Achieving a Better Life Experience Act of 2014 (“ABLE Accounts”) to save for future educational and disability related expenses.  ABLE accounts extend the benefits of 529 college savings plans to disabled persons to include their disability related expenses. Let us discuss.

Only one ABLE account per eligible person is allowed.  Up to $14,000 per year can be contributed to it until all such contributions reach a $100,000 limit.  An ABLE account grows tax free and so may exceed $100,000 in value without penalty.

A 529 College Savings Plan is not ideally suited to the needs of blind and disabled persons.  They have additional expenses related to their disability needs and their receipt of needs based government benefits.  ABLE accounts allow families to accumulate and grow money tax free for educational and disability related expenses without the legal cost of establishing a Special Needs Trust (“SNT”) for that purpose.  The ABLE account both broadens the scope of the tax sheltered 529 college saving plan and makes up to $100,000 in the account not countable for need based government benefits, so that the beneficiary does not lose his or her Supplemental Security Income (“SSI”) or Medi-Cal benefits.  Whatever is not spent on education can instead be spent towards “Qualified Disability Expenses”.

Qualified Disability Expenses means, “any expenses related to the eligible individual’s blindness disability or that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, [to be approved by regulations].”

Anyone who became blind or disabled, as defined by Social Security Law, prior to their 26^th birthday is eligible.  A person who receives Social Security Disability Income (SSDI) due to their blindness or disability is eligible.  Otherwise, a physician’s certification that the individual is blind or disabled, due to an impairment that began before the age of 26, and the condition is expected to result in death or has lasted (or will last) for at least 12 months is sufficient.

Once an ABLE account reaches $100,000 the amount above $100,000 becomes a countable resource for purposes of determining whether the blind or disabled beneficiary is eligible for needs based SSI.  That is, if an account reaches $102,000 the beneficiary is automatically suspended from SSI benefits due to having more than $2,000 in countable resources.  SSI benefits resume once the account returns to $100,000, presuming the person is otherwise eligible to receive SSI benefits.

On the other hand, an ABLE account has no impact on Medi-Cal eligibility. Nonetheless, like other exempt assets, at the beneficiary’s death it is then subject to Medi-Cal estate recovery claims.  Given the $100,000 limitation on total contributions, however, it is unlikely that an ABLE account would have anything left when the disabled beneficiary dies.

ABLE accounts do not really replace the third party SNT.   A third party SNT will still often be desirable for parents wishing to leave significant inheritances to their special needs child.  SNT’s, after all, have no annual or in a lifetime contribution limits.  Nor will SNT’s established by family members through their own estate planning ever be subject to the future Medi-Cal Estate Recovery claims of the beneficiary; thus, whatever remains in the SNT when the beneficiary dies can go to other family members.

Come 2016, families of blind and disabled children can start tax free savings accounts to ensure a significant pool of money available to meet their children’s future educational and disability related needs.