Able actThis past February, Jerry and I both blogged on the ABLE Act, which created a new type of tax-advantaged savings plans for the benefit of disabled individuals under § 529A of the federal Internal Revenue Code.  ABLE accounts will be somewhat similar to educational savings accounts established under I.R.C. § 529. 

The new provision is important because § 529A provides the disabled ABLE account beneficiary with special treatment in determining the beneficiary’s financial eligibility for Medicaid. Normally, in order to be eligible for Medicaid in New Jersey, the Medicaid applicant cannot have more than $2,000 in countable resources in her name. However, any funds deposited in an ABLE account are disregarded in determining Medicaid eligibility for the disabled beneficiary. This means that the ABLE account beneficiary may, after qualifying for Medicaid, use the ABLE account proceeds to pay for her “qualified disability expenses,” which include:

… 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, which are approved by the Secretary under regulations and consistent with the purposes of this section.

The United States Treasury Department is expected to issue further guidance on what more may comprise “qualified disability expenses.” The guidance is due on June 19, 2015.

The “trade-off” for this powerful benefit is that any funds remaining in the beneficiary’s ABLE account at the time of her death are subject to a Medicaid lien, at least to the extent of any funds spent on her behalf by Medicaid. After any Medicaid payback, any remaining proceeds in the ABLE account pass to the beneficiary’s estate. 

ABLE accounts also receive favorable treatment for the purposes of determining eligibility for Supplemental Security Income (“SSI’), which Jerold discussed in his earlier blogs.

In some cases, an ABLE account may provide more choice and control for the beneficiary at a lower cost than establishing and administering a special needs trust or a pooled income trust. ABLE account owners may have the ability to control the ABLE account funds, and still can establish a special needs trust or a pooled income trust account if necessary.