At long last, Achieving a Better Life Experience (ABLE) accounts are available in New Jersey.
While this is a positive development, contrary to misconception ABLE accounts are not singular tools for long-term financial and benefits planning for a person with a disability. Due to the various limitation of ABLE accounts, it will typically be much more advantageous for families to create a special needs trust, particularly for inheritances.
Please refer to our other articles on special needs trusts for more information.
However, an ABLE account can be a very useful tool in conjunction with a special needs trust enabling families to more fully cover a wide array of needs and provide families with greater flexibility in future planning.
On June 18, 2018, New Jersey launched its ABLE Account Program. New Jersey is participating in the National ABLE Alliance, which is a consortium of states which have banded together to open accounts for their residents. ABLE accounts are tax advantaged accounts for individuals with disabilities. These accounts can be used to save money for an individual with a disability without jeopardizing eligibility for means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). These accounts can also help to protect the continued receipt of services from the Division of Developmental Disabilities.
In order to qualify for an ABLE account, an individual must have a qualifying disability which manifested before the age of 26. Individuals receiving SSI or SSDI benefits will automatically qualify. Those individuals not receiving any benefits from Social Security will have to prove their disability with a certification. For individuals who cannot manage their own accounts, an “Authorized Individual” may be chosen to act on the owner’s behalf (similar to a “representative payee” for Social Security benefits).
The process of opening an ABLE account promises to be relatively painless, with the website boasting an application that can be completed in as little as 10 minutes. You can apply online by visiting https://savewithable.com/nj/home.html. The assets in ABLE accounts will be invested for you, although you can choose your desired level of risk (from conservative to aggressive), or you can opt for a simple checking account which will be operated by First Third bank. There will be fees charged to the account based on the investment option you choose.
Although ABLE accounts will be beneficial to many, it is important to be aware of the following limitations of these accounts:
- the annual maximum contribution to an ABLE account is currently $15,000,
- if there is more than $100,000 in the ABLE account the individual will lose SSI benefits (but not Medicaid), and
- the funds must be spent on “qualified disability expenditures” which include education, housing (see note below on special considerations for SSI recipients when using ABLE account funds for rent), transportation, employment support, health and wellness, assistive technology, etc.
Additionally, New Jersey’s accounts will have a maximum balance limit of $305,000 (this amount may change over time). It is also important to know an individual can only have one ABLE account, although anyone can contribute to it.
Finally, it is very important to understand any money left over in an ABLE account at the time of the individual’s death will be paid to Medicaid.
A Very Important Note on Rent:
ABLE accounts are unique in that funds from an ABLE account can be used to pay for housing costs like rent without jeopardizing SSI and Medicaid eligibility. However, the Social Security Administration will, in some instances, count funds withdrawn from an ABLE account for housing costs as a “resource” of the beneficiary for purposes of determining SSI eligibility. As such, SSI recipients should seek advice before using ABLE account funds on housing expenses. As a general rule, funds withdrawn from an ABLE account and used to pay a rent expense should be spent in the same month as the withdraw was made. Funds withdrawn from an ABLE account for qualified expenses other than housing will not be treated as a resource of the beneficiary.
As you can see, ABLE accounts are helpful tools and can work well as part of a comprehensive plan. As no two situations are exactly alike, skilled, experienced and individualized advice will be necessary to help families navigate this complex maze and develop strategies which maximize the effectiveness of an ABLE account in conjunction with other long-term planning techniques.
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