Dampening expectations on NEW YORK’S ABLE ACT and a pre-warning to families with disabled individuals.
On December 19th, 2014, President Barack Obama signed into law the Achieving a Better Life Experience (ABLE) Act, authorizing states to establish ABLE savings accounts for individuals with disabilities. In March 2015, New York sought to implement this Federal act with a Bill with a view to enacting a NY ABLE Act. The Bill Number in question is S4472C (http://open.nysenate.gov/legislation/bill/S4472C-2015)
The intent of the NY ABLE Act is to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities. In essence, the funds that are placed in the ABLE account is not considered to be a resource for the purposes of government benefits i.e. Medicaid.
At first glance, the idea of being able to fund an account for the benefit of a disabled person is a winning idea. Parents/grandparents and the like can avoid the need to open a special kind of trust fund (called a 3rd party special needs trust) by placing funds into a bank account. No need for confusing trust language lingo… Simply go to a designated bank and open an ABLE account!
If the proposed Bill passes unchanged (and there appears to be very little reason for the legislature to change the Bill because it seems to be making their constituents very happy) then families looking to establish such ABLE accounts for disabled individuals must be advised of certain pitfalls that await, which include (but is not limited):
**1. The Bill suggests that the ABLE account can be funded by the disabled beneficiary as well as any third party (for the benefit of the disabled person). What does this mean?? Well… in a nutshell… a disabled individual who receives Medicaid benefits can place $10,000 of their own money into the ABLE account. The disabled individual’s dad can also place $10,000 into the ABLE account. The disabled individual’s grandmother can place $10,000 into the ABLE account. The problem?… the Bill also proposes a ‘payback’ for medical payments made to the disabled individual.
Hang on a second…
“…but my lawyer told me that if I place money for my disabled child into a third party special needs trust then that money would pass to designated beneficiaries and there would be no pay back to Medicaid?!?”
..but this isn’t a third party special needs trust. This is the ABLE Act which New York proposes. An account that is a mish-mash of money belonging to the disabled beneficiary AND third party relations. As things stand.. if a third party person places money into an ABLE Act account then any funds remaining will be used to pay back to government agencies. Not so with a third party special needs trust.
The likelihood is that it will be the lawyer who will be left clearing up the mess left by families that have been advised by all asunder to avoid seeing a lawyer in setting up a trust, and simply fund an ABLE account.
**2. The Bill also suggests that the disabled beneficiary can withdraw funds from the ABLE account to meet ‘expenses’. Holidays, vehicles, food items, clothes … (?) As things stand no one knows what these allowable ‘expenses’ are. If the Bill passes then the challenge will be to educate disabled individuals on when they can withdraw funds, and when they can’t.
Why should this matter?
This matters a great deal, not least in the proposed penalties and income tax implications for those who withdraw from the ABLE account and spend when it was not an allowed expense.
The withdrawal of money from a special needs trust (be it a first party or third party) has often caused confusion among families. The same will apply to the ABLE Act unless the language in the Bill is tightened to clarify what is meant by allowable ‘expenses’. The consumer must be protected here as well as educated.
**3. While on the matter of educating the public, families must also be made aware that there will be limits on how much an ABLE account can contain before the disabled beneficiary will be made ineligible for certain benefits. People must not be consumed with ‘Medicaid’ blinkers and take their eyes off other benefits the disabled individual might well be the recipient of i.e. SSI benefits.
The concern here is that families will likely see CPAs when it comes to dealing with accounts (to include an ABLE account), yet how many CPAs are qualified to give adequate advice on the impact on public benefits?
The intention and implementation behind the ABLE Act will help families in New York who care for a disabled individual. Families must, however, proceed with caution to avoid unintended consequences unless amendments are made to the current NY ABLE Act Bill to address, not least, whether or not such ABLE account will have a ‘payback’ requirement despite being funded by a third party.