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Legal Notes

ABLE Account: an investment vehicle for grandchildren with special needs

Seunghee Cha ProfileAttorney Seunghee ChaI often do estate planning for clients with a relative who has an intellectual or developmental disability. Quite a few of them are grandparents who contribute money to college savings accounts for their typically developing grandchildren. Over the years, some have expressed regret that they cannot do the same for a grandchild with special needs who is not expected to attend college. What could they do that is fair and thoughtful? They explore establishing a trust for the grandchild, even paying for the grandchild’s parents’ estate plan to help the family prepare for uncertainties.

Grandparents now have an additional new tool: the Achieving a Better Life Experience (“ABLE”) account. Modeled after the 529 college savings account, the ABLE account is a bipartisan accomplishment amending the federal tax law to permit a tax-favored investment vehicle for individuals with disabilities, thanks to advocacy by dedicated parents of children with Down syndrome.  

To open an ABLE account, the account owner and beneficiary must have a disability that began before age 26 and receive SSI or SSDI, or be medically certified to have a degree of disability that would medically qualify the person for SSI or SSDI. Each individual is permitted to have one ABLE account, to which anyone, including the individual, can contribute cash up to a combined annual total, from all contributors, of the annual gift tax exclusion amount ($15,000 in 2018). The funds are income-tax free at withdrawal, both at federal and state levels, if used for “qualified disability expenses” to increase the individual’s health, independence, and quality of life. Non-qualified disability expenses are subject to income tax and 10% penalty.

Examples of qualified disability expenses are education; housing; health, prevention, and wellness; transportation; personal support services; employment training and support; and assistive technology. The account assets are generally non-countable for eligibility for means-tested governmental benefits. The maximum account limit is the state’s 529 college savings plan limit ($400,000 for Massachusetts). For SSI recipients, up to $100,000 in the account is a non-countable asset. For people who receive Medicaid benefits, at death the remaining account assets are subject to state Medicaid estate recovery for Medicaid benefits received after opening the account.

The ABLE account is currently available in 28 states, 20 of which are national programs open to residents of any state. The Massachusetts program (open to residents of any state) is managed by Fidelity Investments and became available in May. If you are interested in opening an ABLE account for your grandchild, it’s worth shopping around for a suitable program. For more information and a comparison of the state programs, visit the ABLE National Resource Center.

The views expressed in this column represent general information. To address your particular and specific needs consult your own attorney. If you need help with referral to an attorney, contact the Franklin County Bar Association at (413) 773-9839 or the Worcester County Bar Association at (978) 752-1311. Elder law resources may be found through the National Academy of Elder Law Attorneys, Massachusetts Chapter, at massnaela.com or 617-566-5640.

Community Legal Aid (CLA) provides legal services free to people age 60 and older for civil legal matters with an emphasis on access to health care coverage (MassHealth and Medicare) and public benefits as well as tenants’ rights. A request for legal assistance can be made by phone at 413-774-3747 or toll-free 1-855-252-5342 during their intake hours (Monday, Tuesday, Thursday, and Friday from 9:30 a.m. to 12:15 p.m. and Wednesday from 1:30 p.m. to 4:15 p.m.) or any time online.