As a result of the Achieving a Better Life Experience (ABLE) Act of 2014, individuals will soon be able to establish STABLE accounts when doing estate planning for disabled family members. This new federal law allows families to assist individuals who have disabilities to establish an account to save money for individual family members with disabilities in order for them to use it for their various permitted expenses throughout their life. These types of STABLE accounts are to be used to supplement income received through other government programs such as Medicaid and SSI.
These STABLE accounts are tax-free accounts that can be used to save for disability-related types of expenses. These accounts can be created by disabled individuals or family members for the disabled individual. The funds in these accounts can be invested and distributed income tax-free, when needed, to the disabled individual. Contributions are not deductible, however, the earnings grow income tax-free so long as they are utilized for qualified expenses. Limits exist on the number of contributions that can be made each year and in total. Each year contributions from all individuals cannot exceed 14,000. Any excess contributions to the account are subject to a six percent penalty. Total lifetime allowable contributions cannot exceed $394,000.
The disability-related expenses must be for the benefit of the individual with the disability and must be related to the disability. Some of these expenses include those related to transportation, health, education, housing, personal support services, legal fees, funeral and burial costs, and other IRS-approved expenses. Any distributions for non-qualified expenses are subject to income tax and certain penalties.
In order to establish a STABLE account, individuals must have been disabled before the age of 26 and must be entitled to benefits under the SSI or the SSDI programs. Generally, this account should not affect the disabled individual’s Medicaid or SSI eligibility. The first $100,000 in such an account is exempt from being counted toward the SSI program’s $2,000 individual resource limit. Care needs to be taken when establishing and maintaining this type of account because if the rules are not followed properly, a disabled individual could lose benefits.
Since this is a new program, a number of items need to be considered. This will take time to fully understand the impact of this new program. It is my understanding that the specific regulations for this new law are being finalized.
Therefore, if you are a disabled individual or if you have a family member who is a disabled individual, please make sure to consider the use of a STABLE account in your estate planning. Please contact your local estate planning attorney for more information on this program.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663