By Jane M. Fearn-Zimmer, Esquire
Jerold E. Rothkoff, Esquire blogged on new legislation passed by Congress called the ABLE Act, which allows people who can show that they become disabled prior to the age of twenty-six (26) and their families, to enjoy tax-favored savings for a variety of expenses, by establishing an a savings account which functions similarly to a 529 educational savings account. I am pleased to report that President Obama has signed that legislation, and the Treasury Department is now drafting proposed regulations to implement the law. It is hoped that by the end of 2015, every State will establish and operate an ABLE program. A state must implement an ABLE program in order for an individual to establish an ABLE act in that state.
The ABLE Act, which is an acronym for Achieving a Better Life Experience,” will allow a disabled individual or a relative of a disabled individual, to set up a savings account for the disabled person. Any funds transferred to the ABLE account are not counted as income to the disabled beneficiary and no income taxes will be payable on the account earnings, provided that the funds are used to pay for disability-related expense. Funds in an ABLE account are also an exempt resource in determining eligibility for Medicaid on the part of the disabled account beneficiary. In 2015, up to $14,000.00 may be deposited into an ABLE account without any federal gift tax liability, and this amount is indexed annually for inflation. When the balance in an ABLE account exceeds the sum of $100,000, the disabled beneficiary will lose any eligibility for SSI eligibility but the funds on deposit in the ABLE account remain an exempt resource for Medicaid purposes. Upon the death of a disabled beneficiary, any state paying Medicaid benefits for the benefit of the disabled beneficiary will have a Medicaid lien on the account proceeds. If there are funds in the ABLE account after the payment of any Medicaid lien, the account balance may be disbursed to the estate of the disabled beneficiary.
Once the State of New Jersey establishes an ABLE Act program, an ABLE account will be yet another tool in planning for the disabled. It is anticipated that ABLE accounts will be used frequently in conjunction with Special Needs Trusts.