ABLE Act Benefiting Disabled Americans Passed by Congress

December 23, 2014

Types : Alerts

In its first major piece of legislation benefitting disabled individuals since the 1990 Americans with Disabilities Act, on December 16, 2014 Congress passed the Achieving a Better Life Experience Act (“ABLE”).  President Obama signed this legislation on December 19th.  The ABLE Act allows individuals to establish accounts, similar in operation to tax-free college savings accounts (529 Accounts), for a disabled individual who resides in a state which has a program for ABLE accounts or which has contracted with a state which has an ABLE program.  As long as the funds in an ABLE account do not exceed $100,000, the existence of the account does not jeopardize the disabled person’s (the “designed beneficiary’s”) eligibility for federally means-tested public assistance.

The designated beneficiary must already be receiving social security disability benefits or be diagnosed by age 26 with a disability that results in “marked and severe functional limitations.”  Under the Act, families of the disabled individuals and other donors can establish tax-free accounts at financial institutions.  The total deposits to the ABLE account in each year cannot exceed the amount of the federal gift tax annual exclusion, which in 2014 and 2015 is $14,000.  Contributions to the account qualify for the federal gift tax annual exclusion and therefore do not consume the federal estate and gift tax exemption.  Distributions from an ABLE account are not subject to gift tax.

Funds in the account can be used to pay for the designated beneficiary’s “qualified disability expenses” such as education, transportation and health care.  Contributions to the account are not tax-deductible to the donor but the earnings in the account growtax-free and qualifying distributions from the account are not subject to income tax.  An ABLE account would be able to accrue up to $100,000 in value without the designated beneficiary losing eligibility for government aid such as Social Security.  In the absence of an ABLE account, the asset limit for federal means-tested public assistance for a disabled individual is $2,000.  Medicaid coverage would continue no matter how much money is deposited in the accounts.