If you have a loved one with special needs, you worry about their future and caring financially for them long term. Some good news hit Michigan recently – legislation was signed that will allow for Michigan residents caring for a loved one with a disability to set up and fund a savings account that can be used for certain expenses. It is the Michigan Achieving a Better Life Experience (ABLE) Act, and it enables the establishment of ABLE savings accounts. While this will not alleviate all of your concerns, it is one more tool in your toolbox to provide for your loved one in the long term.
What is it:
The ABLE Act permits an “eligible individual” to establish a savings account for his or her benefit, known as an ABLE savings account. Assets in the account are disregarded for means-tested assistance programs, meaning the account will not be looked at when the individual is looking to qualify for certain benefits under the Social Security Administration, and other similar programs and agencies.
An “eligible individual” is defined as an individual who is entitled to benefits based on blindness or a disability as defined by the Social Security Act, and they have had the disability or blindness before age 26. Additionally, if the individual has a disability certification, they will qualify as an eligible individual.
Who can have an ABLE account:
An “account owner” is an individual who is a resident of Michigan, or a contracting state, who enters into an ABLE savings program agreement and establishes an ABLE savings account. The owner is also the designated beneficiary, unless that person is a minor or lacks capacity to enter into such a contract. In those cases, a designated representative is to be appointed. Each account can only have one designated beneficiary and only one account shall be opened for any one designated beneficiary.
The account owner can name another individual as successor owner of the account, so as to avoid probate upon the death of the account owner. For example, if the parents of a minor or a child that lacks capacity, established an ABLE account for their child, it would be owned by one parent and the other parent would be the successor owner.
How much can be in the account:
An individual can have up to $500,000 in his or her ABLE account, however, BEWARE OF THE FEDERAL LIMIT OF $100,000. If the ABLE account exceeds $100,000, Social Security and Medicaid may be suspended. In Michigna, if the account receives contributions in excess of $500,000, the account manager must reject the contribution. To help avoid a rejection, the manager must alert owner when the account is within $1,000 of the cap, and must give notice at least five business days before rejecting a contribution. An account can accrue earnings above the $100,000 maximum amount without incurring a penalty; it just cannot receive contributions over the $100,000 cap.
One more thing to keep in mind, the account has an annual cap of $14,000 – meaning it can only receive $14,000 in one year (again, this is the Federal rule).
How do you get an ABLE account:
This is still in the process. The ABLE Act was signed into law on October 28, 2015 and when I called the Department of Treasury in Lansing (the department in charge of hiring “Program Managers” that will hold and manage the assets) on October 30, they had not had the chance to set up a process for naming managers. It does seem that an individual will work directly with a Program Manager that has been appointed by the state to set up the account, and then going forward when requests for distributions are made.
*Update – as of April 18, 2016, there still was no way to set up this account. There is work being done to get this up and running by the end of 2016.
What can the ABLE account assets be used for:
The account assets can be distributed for Qualified Disability Expenses. These are any expenses related to the eligible individual’s blindness or disability made for the benefit of the eligible individual who is the designated beneficiary of the ABLE account. These 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, funeral and burial, and other expenses which are approved under regulations. Distribution can be via check or EFT or directly to the provider of the goods or services.
What about taxes:
Tax deductions for contributions to ABLE accounts, less qualified withdrawals, and to the extent not deducted from adjusted gross income, are:
- A deduction of $5,000 for a single return, or
- A deduction of $10,000 for a joint return.
What happens when the designated beneficiary dies:
This might be a downside to having one of these accounts, depending on your view and situation. Upon a designated beneficiary’s death, the assets remaining in the account are distributed as follows:
- Outstanding payments due for qualified disability expenses are to be paid from the account;
- Medicaid is reimbursed for any medical assistance paid for the benefit of the designated beneficiary after the establishment of the account (net of premiums paid from the account or paid by or on behalf of the beneficiary to a Medicaid Buy-In program);
- The assets remaining in the account are to first be paid to the State of Michigan upon the state filing a claim for payment for any care provided by the state to the beneficiary. While normally the account is shielded from creditors, garnishment, law suits, etc., the state may be a creditor upon the designated beneficiary’s death.
This final distribution language is pursuant to Public Act No. 160, Section 17(2), which references Internal Revenue Code 529(f).
The passing of the ABLE Act has been seen as a victory amongst many people who work with individuals who have a disability. As stated above, it is not a solution to all concerns, but it is a very useful tool when paired with other planning tools.
On November 11, Jessica, the author of this blog post, spoke with Shelley Irwin from the WGVU Morning Show regarding the ABLE Act. To listen to the interview, click this link: WGVU News – Audio clip of the ABLE Act interview with Jessica Schilling