Question: What is an ABLE account and how does the Protecting Americans from Tax Hikes (PATH) Act of 2015 affect such accounts?
Answer: The IRS enacted legislation (new Code Section 529A) permitting distributions from so-called ABLE (Achieving a Better Life Experience) accounts to be made tax free for the general welfare of special needs children. These accounts provide certain benefits to parents of special needs children including tax-free accumulations so long as these accounts are used for ‘qualified disability expenses’ and are exempted from the limit (current $2,000) on personal assets in order to qualify for SSI and other public benefits. There are limits as far as funding these accounts and a limitation on eligibility by way of a required diagnosis of disability of the account’s beneficiary.
PATH removed the requirement that an account could only be opened in the beneficiary’s home state. Similar to 529 (education) plans, beneficiaries of ABLE accounts may now open an account in any state. Some commentators thought that PATH would also include allowing the rollover of a 529 account to a 529A account, but this did not occur.
Maryland Update: In Maryland, the House of Delegates has introduced a bill to implement the ABLE program with the goal to have the program operational by October 1, 2017. While the bill prohibits assets in an ABLE account from being considered for purposes of ‘means-tested’ programs, a bill called HB 431 does permit a state to file a claim for medical assistance paid for the designated beneficiary under the state’s Medicaid plan after the establishment of the ABLE account.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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