The state of Michigan has just made it easier for families caring for loved ones with special needs to set money aside without penalty.
Starting in 2016, the Achieving Better Life Experience Act will allow people receiving public means-tested benefits, who are currently restricted in how much money they can save, the ability to save up to $500,000 to help plan for their future.
These ABLE savings accounts can be set up to help families save money for their loved one’s long-term care without jeopardizing Medicaid and other means-tested benefits.
Who’s eligible? Any individual entitled to benefits based on blindness or disability who had the blindness or disability before age 26.
Unlike traditional savings accounts, funds in ABLE savings accounts are disregarded for means-tested assistance programs, meaning the account will not be looked at when applying and qualifying for certain public means-tested benefits.
That's good news for families. Until the ABLE Act, individuals who received Medicaid benefits were limited to $2,000 worth of assets. For many people, a small paycheck or inheritance could put them over that limit and cause a decrease or suspension of benefits.
Now, holders of ABLE savings accounts can accrue up to $500,000 without being disqualified for certain benefits by the Social Security Administration and other similar programs and agencies. If the contributions to the account go over the $500,000 mark, the benefits under the Social Security Act may be suspended — although not terminated.
Funds in the account can be used for a variety of qualified disability expenses. Any expenses related to the eligible individual’s blindness or disability are considered qualified, including: 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 that are approved under regulations.
Distributions and payments can be made via check, by electronic fund transfer, or directly to the provider of the goods or services.
There are tax benefits to the ABLE accounts, too. For tax years beginning after 2015, a person filing a Michigan tax return as an individual can deduct up to $5,000 made in contributions and those filing a joint return can deduct up to $10,000.
Exactly how families can go about opening an ABLE savings account is still up in the air. The Michigan Department of Treasury will be in charge of hiring “program managers” that will hold and manage the assets. The Department of Treasury is still working on naming these program managers.
As the law allowing ABLE savings accounts does not take effect until Jan. 26, there will be more information to follow.
But ABLE accounts come with a potential — and potentially significant — downside.
Upon the death of the designated beneficiary, assets don’t necessarily pass over to another family member. Funds remaining in the account are distributed first to any outstanding payments due for qualified disability expenses. Then Medicaid is reimbursed for any medical assistance paid after the account was established.
Finally — and while, normally, the account is shielded from creditors, garnishment, lawsuits, etc., the state may be a creditor upon the beneficiary’s death — any assets remaining in the account are paid to the state of Michigan for care the state provided to the beneficiary.
The passing of the ABLE Act has been seen as a victory among many people who work with individuals who have a disability. While it is not a solution to all concerns, it will be a very useful tool when paired with other planning tools.
Jessica Schilling is an account executive at Legacy Trust, an independent, locally owned, Michigan-chartered bank. An attorney by training, she focuses on trust and estate management and administration and works extensively with people with special needs and their families. She can be reached at firstname.lastname@example.org.