Q. I have no children and my niece has Autism. I’d love to help save for her future but my sister tells me that if I leave anything to her upon my death or put any current savings in her name I could interfere with her Social Security Disability Benefits. Recently I read that Governor McCrory signed a new bill into law called the ABLE Act and it is suppose to help the disabled. Is this correct? If so, please provide an explanation of this program and if you think this would be a good way to help my niece.
A. The ABLE Act may be useful for your niece but you should seek the advice of an attorney that specializes in planning for those with special needs. Look for someone with knowledge about the rules surrounding Medicare/Medicaid benefits and special needs trusts. You have time to do some research to determine if funding an ABLE Act account will be of benefit for your niece since the law was just signed into law for North Carolina on August 11,2015. The accounts will be called 529A accounts and the actual savings vehicles are not yet available in NC.
The ABLE Act (Achieving a Better Life Experience) was signed into Federal law December 19, 2014. The official name is now Stephen Beck Jr. ABLE Act. Mr. Beck led the fight for this legislation, has a daughter with Down syndrome and died unexpectedly five days after the House passed the bill. Each state has to pass legislation to create the vehicle for ABLE accounts to be created and administered. NC was the 30th state to sign the ABLE Act into law.
The law creates a new savings vehicle for those with disabilities. The money can be used for education, medical and dental care, job training, housing, transportation and other expenses. The first $100,000 is disregarded when determining SSI (Social Security Income) eligibility. Without this Act a person receiving Medicaid could only have personal liquid assets of $2,000 or less. Contributions grow tax free and withdrawals for qualified expenses are tax free.
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To be eligible for an account a person must be entitled to Social Security benefits based on a blindness or disability that occurred before the date on which the individual turned age 26. A beneficiary is limited to one ABLE account and the account must be set up and established in the state in which they live unless another state has a contract with the state in which they live.
Contributions are treated as a completed gift, they are non-deductible cash contributions limited to $14,000/year. ABLE accounts may be rolled-over tax free from one account to another for the same beneficiary but only once in a 12 month period. Any amounts remaining in an ABLE account once the beneficiary is deceased are subject to a claim from the state for an amount to replace Medicaid payments made by the state.
Special needs trust are not subject to this payback provision and can be established for any age beneficiary. There are also no dollar limits that can be contributed or accumulated in the trust. Special needs trusts are complicated and subject to their own tax rules. A knowledgeable attorney can help you determine if the ABLE account, a special needs trust or a combination of the two would be of benefit for your niece. Coordination with all others wishing to gift or leave inheritances is important.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624