After part one of our article regarding ABLE accounts, we received several inquiries about how funds in ABLE accounts may be invested, how ABLE accounts differ from a 529 college savings plan, what constitutes permissible uses of ABLE account funds and what happens to account funds after the participant passes away. “ABLE” is an acronym for Achieving a Better Life Experience and it was created by the Achieving a Better Life Experience Act (“ABLE Act”). The ABLE Act provided a framework for states to create programs which assist individuals and families in establishing tax-free savings’ accounts to support individuals with disabilities. The Florida Achieving a Better Life Experience Act (“Florida ABLE Act”) was enacted into law on May 21, 2015.
After opening a Florida ABLE account (“ABLE Account”), a participant is offered eight professionally-managed investment options. These investment options include predesigned portfolios and funds from which a custom portfolio may be built by allocating funds to one or more investment options. Participants may choose from options offering different risk levels, including (1) conservative; (2) moderate; and (3) growth-level investments. Participants may also choose individual funds to create a customized portfolio.
ABLE Accounts, like traditional 529 college savings plans, provide a tax-efficient mechanism to promote savings. Traditional 529 college savings plans are a countable resource to disabled beneficiaries who receive Supplemental Security Income. Traditional 529 plan funds and ABLE Accounts may be used for post-secondary public, private or religious school tuition as well as qualified educational expenses such as enrollment application fees, books, supplies and computer equipment that is required to enroll in or attend an eligible educational institution. However, unlike traditional 529 college savings plans, ABLE Account funds may be used for non-educational expenses such as transportation, employment training and support, assistive technology, personal support services, health prevention and wellness, financial management and administrative services.
Florida law allows ABLE Account funds to be used for qualified disability expenses, as defined by the Internal Revenue Code. Pursuant to 26 U.S.C. § 529A(e)(5), “qualified disability expenses” 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 and funeral and burial expenses. An individual who is eligible to create an ABLE Account (an “Eligible Individual”) may transfer funds from a traditional 529 college savings plan into an ABLE Account without penalty but the transfer is included in the $15,000 ABLE Account annual contribution limit. An Eligible Individual is permitted to contribute wages earned from employment into an ABLE Account. Wages are deemed earned income but wages do not count as an asset for federal means-tested programs such as Medicaid.
Upon the death of an ABLE Account participant, the funds from a decedent’s ABLE Account may be used by the participant’s estate to repay outstanding qualified disability expenses. If an ABLE Account participant was receiving benefits from Medicaid, then those benefits may be subject to Medicaid payback upon the ABLE Account participant’s death. Due to Medicaid payback laws, third parties who contribute to an ABLE Account may consider establishing and funding a special needs trust for an Eligible Individual because the funds contributed to a third-party special needs trust are not subject to Medicaid payback laws.
ABLE Accounts are often a great supplement to a special needs plan and are generally implemented in conjunction with other planning tools. If you require assistance regarding ABLE Accounts, special needs trusts and other planning matters, please contact Michael Salad via e-mail at firstname.lastname@example.org or via direct dial at (954) 889-1850 or Craig Panholzer via e-mail at email@example.com or via direct dial at (954) 889-1856.
Michael Salad is a partner in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate planning, special needs planning, probate, business transactions, mergers and acquisitions and tax matters. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida, New York, Pennsylvania, Maryland and the District of Columbia.Craig Panholzer is an associate in Cooper Levenson’s Business & Tax practice group in its Florida office. He concentrates his practice on business transactions, cyber risk management, estate planning, special needs planning, probate and tax matters.