Friday February 3, 2017
ABLE accounts come to Kentucky
posted by Thomas J. Banaszynski
Tags: In the news
What is the ABLE Act? The ABLE Act was passed by the 113th Congress, and signed into law on December 19, 2014 by President Obama. The Steven Beck, Jr. “Achieving a Better Life Experience” Act of 2015 (ABLE Act). The ABLE Act was named to honor Steven Beck, Jr., a parent from northern Virginia who helped conceive and develop the ABLE Act, and who worked tirelessly for its passage.
The ABLE ACT amends Section 529 of the Internal Revenue Code, and may be found at 26 U.S.C. § 529A. The ABLE Act modifies the federal law which created “529 College Savings Plans” to provide savings accounts for individuals with disabilities so these individuals could still qualify for resource and income dependent public benefits.
What was in place before the ABLE Act? Until the ABLE Act was signed into law in December, 2014, families with children with disabilities had little or no incentive to save for the future of the children. If they saved more than $2,000 for college, an apartment, health needs, or even transportation to work, they risked losing critical benefits for their children, including medical and supplemental income coverage.
The ABLE Act has two (2) primary purposes:
1) To encourage and assist individuals and families to save private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life.
2) To provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement benefits provided through private insurance, the Medicaid program under title XIX of the Social Security Act, the Supplemental Security Income program under title XVI of such Act, the beneficiary’s employment, and other sources.
The bill supplements, but does not replace benefits provided through private insurance, the Medicaid program, the Supplemental Security Income (SSI) program, the beneficiary’s employment and other sources.
The ABLE Act allows a beneficiary, if he or she is competent to do so, to create and fund the ABLE Account by himself or herself. If the beneficiary is not competent, an ABLE Account may be created by a third party, for example, a beneficiary’s parents or other family members, legal guardian or agent pursuant to a Power of Attorney.
Contributions to an ABLE Account must be made in cash. There are several limits on the amounts that may be contributed to ABLE Accounts. First, the beneficiary of an ABLE Account may only have one ABLE Account; as such, a beneficiary may not utilize multiple states’ ABLE Act programs. The beneficiary of an ABLE Account must choose which state program to utilize, and may only use that program so long as the account is active. Some states with active ABLE Account programs restrict their programs to in-state residents, such as Kentucky, or offer additional benefits to beneficiaries who utilize the program of their home state, but many state ABLE Account programs are open to residents of other states.
Second, ABLE Accounts have a maximum yearly contribution limit from all sources equal to that year’s annual exclusion for the federal gift tax (for 2017, the annual exclusion is $14,000.00). Therefore, the maximum contribution that an ABLE Account beneficiary and any other individuals wishing to contribute to the ABLE Account combined may not exceed $14,000.00 for 2017. This is a significant limitation on ABLE Account funding.
Third, the maximum lifetime amount in an ABLE Account is limited to the maximum amount allowed in a 529 Plan for the state that manages the ABLE Account (approximately $300,000.00 to $500,000.00). Once the lifetime account limit is reached, the beneficiary may not place any additional funds into the ABLE Account.
The beneficiary’s eligibility for Medicaid is not affected by the amount of funds placed in an ABLE Account. Other public benefits, such as SSI, may be suspended if the ABLE Account surpasses $100,000.00, but Medicaid will not be affected. An ABLE Account allows a beneficiary to have some resources in excess of the $2,000.00 monthly limit that are not counted as resources for purposes of determining eligibility for SSI.
An ABLE Account may hold up to $100,000.00 without affecting the beneficiary’s SSI eligibility. If an ABLE Account exceeds $100,000.00 (even if the account is otherwise below the maximum state funding limit), the beneficiary’s SSI will be suspended until such time as the ABLE Account balance drops below $100,000.00. So, the $100,000 limit will be optimal in most situations.
WHO WILL QUALIFY AS A RECIPIENT OR BENEFICIARY OF AN ABLE ACCOUNT?
The Federal ABLE Act provides that a proper beneficiary of an ABLE Account must be determined to be disabled prior to attaining age twenty-six (26).
The beneficiary may be older than age twenty-six at the time the ABLE Account is created, but the disability must have had an onset prior to the beneficiary attaining age twenty-six. The ABLE Age Adjustment act has been introduced in Congress, and is currently under consideration. Pursuant to the proposed legislation, the ABLE Act would be amended to provide that an eligible individual would have to be determined to have become disabled prior to obtaining age forty-six (46), rather than the current age twenty-six (26) determination cutoff.
The Social Security Administration (SSA) considers an individual to be disabled if the individual is not able to participate in any substantial gainful activity because of mental or physical medically-determinable impairments that are expected to result in death or that have lasted or are expected to last for a continuous period of twelve months or more. Substantial gainful activity is considered to be activity done for wages, whether on a full-time or part-time basis. Almost all state Medicaid programs have adopted the SSA definition of disability for determining an individual’s eligibility for Medicaid programs.
WHAT ARE ALLOWABLE EXPENSES FROM AN ABLE ACT ACCOUNT?
The ABLE Act provides that distributions from an ABLE Account may be used for “qualified disability expenses” (QDEs). The statute defines QDEs as:
Any expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary, including the following expenses: 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, basic living expenses and other expenses approved by IRS regulations.
Housing expenses for purposes of an ABLE account are the same as they are for in-kind support and maintenance purposes, except for food. QDEs for housing are payments for:
maintenance (including property insurance required by the mortgage holder); real property taxes; rent; heating fuel; gas; electricity; water; sewer; heating and air conditioning; garbage removal.
ABLE ACCOUNTS AS SELF-FUNDED SPECIAL NEEDS TRUST
ABLE Accounts can be a valuable supplement to a Self-Funded Special Needs Trust. To qualify for a Self-Fund Special Needs Trust, the beneficiary must be disabled and be younger than sixty-five (65) years. No funds may be placed in a Self-Funded Special Needs Trust after the beneficiary has attained age sixty-five.
There is a full Medicaid “payback” for Self-Funded Special Needs Trust. There is no “payback” for Medicaid benefits which may have been received prior to the opening of an ABLE Account.
A Self-Fund Special Needs Trust must be managed by a Trustee, who has complete and unfettered discretion over distributions. The Trust must be for the sole benefit of the beneficiary, and may not distribute cash outright to the beneficiary. In contrast, cash may be distributed to a beneficiary from an ABLE Account. In contrast to ABLE Accounts, there is no limit on the amount of funds that may be placed in a Self-Funded Special Needs Trust.
Funds from a Self-Funded Special Needs Trust may not be used for food and shelter payments on behalf of the beneficiary if the beneficiary is receiving SSI. If payments from a Self-Funded Special Needs Trust are used for food or shelter, the SSA considers these payments to be in-kind support and maintenance for the beneficiary, and will reduce the beneficiary’s monthly SSI by up to one-third of the maximum allowable SSI amount. This is a big difference from ABLE Accounts, where payments from the account may be used for housing-related QDEs.
ABLE ACCOUNTS IN KENTUCKY
In 2016, Senate Bill 179 amended KRS 205.200 to allow for the establishment of ABLE Accounts in Kentucky. The amendment to KRS 205.200, subsection (10), provides as follows:
(a) Notwithstanding any other provision of Kentucky law, the following shall be disregarded for the purposes of determining an individual’s eligibility for a means-tested public assistance program, and the amount of assistance or benefits the individual is eligible to receive under the program:
1. Any amount in an ABLE account;
2. Any contributions to an ABLE account; and
3. Any distribution from an ABLE account for qualified disability expenses.
(b) For purposes of this subsection:
1. “ABLE account” means an account established with any state having a qualified ABLE program as provided in 26 U.S.C. sec. 529A, as amended;
2. “Kentucky law” includes:
a. All provisions of the Kentucky Revised Statutes:
b. Any contract to provide Medicaid managed care established pursuant to this chapter;
c. Any agreement to operate a Medicaid program established pursuant to this chapter; and
d. Any administrative regulation promulgated pursuant to this chapter; and
3. “Qualified disability expenses” means expenses described in 26 U.S.C. sec. 529A of a person who is the beneficiary of an ABLE account.
The ABLE Act was signed into law by Governor Bevin on April 5, 2016. In December 2016, the Office of Kentucky State Treasurer Allison Ball began offering State Treasurer ABLE accounts in Kentucky, or STABLE Kentucky accounts. The initiative is a partnership with Ohio’s STABLE Accounts, an initiative launched by Ohio Treasurer Josh Mandel in the summer of 2016. As a result of Kentucky’s partnership with Ohio, the program comes at a minimal cost to Kentucky taxpayers to administer the program.
STABLE Kentucky Accounts are possible through the federal Achieving a Better Life Experience (“ABLE”) Act passed by Congress in 2014. STABLE Accounts allow individuals with disabilities the opportunity to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Earnings in STABLE Kentucky Accounts are not subject to federal income tax, so long as funds are spent on qualified disability expenses.