Virginia Becomes First State to Approve ABLE Act


Virginia Governor Terry McAuliffe Signs ABLE Act into Law (Source: NBC 29)

Q. Our son, Jeff, has autism spectrum disorder and will likely need assistance throughout his lifetime. We are looking for ways to save for his future without jeopardizing his eligibility for Social Security and other government programs. I read about the ABLE act, and how Virginia was recently the first state to approve it. How does it work, and do you think it is a good way to save for our son?

A. The Achieving a Better Life Experience Act of 2014 (ABLE Act), which was signed into law in December 2014, allows people with disabilities and their families to set up a special savings account for disability-related expenses. Last month, Virginia became the first state to approve legislation related to the ABLE Act, when Gov. Terry McAuliffe signed a bill (HB 2306) allowing for the new savings vehicle

Under federal law, the ABLE Act allows people with disabilities to open special accounts, similar to 529 savings accounts, where they can save up to $100,000 without risking eligibility for Social Security and other government programs. However, states (including Virginia) must put regulations in place before financial institutions can begin offering the accounts. 
How does the ABLE Act work in Virginia?
ABLE savings trust accounts will be administered by the Virginia College Savings Plan to facilitate the saving of private funds for paying the qualified disability expenses of certain disabled individuals. 
  • An eligible individual is someone who becomes disabled before age 26 and (1) receives Social Security Disability Insurance (SSDI) or SSI; or (2) files a disability certification under rules that the IRS will write.
  • ABLE savings trust accounts can assist individuals and families in saving and paying for the education, housing, transportation, employment training, support, assistive technology, personal support services, health, prevention and wellness, financial management, administrative services, and other expenses.
  • Earnings on contributions to ABLE savings trust accounts are exempt from federal income tax.
  • Earnings on contributions to ABLE savings trust accounts will also be excluded from Virginia taxable income, as well. 
  • If the assets in an ABLE account reach $100,000 and the beneficiary is receiving SSI benefits, monthly SSI benefits will be placed in suspension.  If the assets in the ABLE account drop back below $100,000, the SSI cash benefits resume.  No re-application is necessary.
In addition to Virginia, the ABLE Act has been enacted in West Virginia and North Dakota, and the Kansas legislature has sent the ABLE Act to their governor. What’s more, legislation is under consideration in 29 other states and draft bills are in the works in another seven, according to Heather Sachs, director of state government affairs for the National Down Syndrome Society.
Medicaid Eligibility
A beneficiary will not lose eligibility for Medicaid based on the assets held in the ABLE account, even during the time that SSI benefits are suspended (as described above for an account with over $100,000). However, under the ABLE Act, when the qualified beneficiary dies (or if he/she is no longer disabled), any remaining assets in the ABLE Account are used to “pay back” any state Medicaid plan up to the value of Medicaid services provided to the beneficiary. The payback is calculated based on amounts paid by Medicaid after the creation of the ABLE Account. This is a MAJOR drawback for most families who want to fund a trust without giving up the right to allow other family members to ultimately benefit from any remaining assets.  The National Academy of Elder Law Attorneys is fighting to ensure that the best parts of the ABLE legislation are preserved while proposing amending the Medicaid payback requirement.
Special Needs Planning
It is vitally important for parents to take the right steps to ensure their child will be financially secure and cared for in the event of death or disability of the parent, including:
  • Hiring an attorney who is experienced in creating special needs trusts, such as myself; 
  • Clearly spelling out your wishes for the disbursement of trust funds within the trust document; 
  • Finding someone you can trust that has your child’s best interests at heart to serve as trustee and/or 
  • Hiring an institutional trustee that has a reputation for utilizing social workers and case managers to monitor the welfare of beneficiaries and determine how trust funds should be spent.
Special Needs Trust

Unlike an ABLE Account, assets remaining in a properly established Third Party Special Needs Trust are not recoverable by Medicaid at the time of the beneficiary’s death if the trust was funded using the assets of the parent or other third party. This allows the creator to provide for a secondary beneficiary. Therefore, an ABLE account should NOT be used as a substitute for a Third Party Special Needs Trust, but rather only a limited substitute for a First Party Special Needs Trust.A special needs trust is recommended to protect a disabled individual’s financial future. Also known as Supplemental Needs Trusts, this type of trust preserves legal eligibility for federal and state benefits by keeping assets out of the disabled person’s name while still allowing those assets to be used to benefit the person with special needs. Read more here.

When it comes to special needs planning, The Law Firm of Evan H. Farr, P.C. can guide you through this process. If you have a loved one with special needs, call one of our offices to make an appointment for a no-cost consultation:

Fairfax Elder Law: 703-691-1888

Fredericksburg Elder Law: 540-479-1435

Rockville Elder Law: 301-519-8041

DC Elder Law: 202-587-2797

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