I’m not sure how much you know about the ABLE act, but in case you didn’t read my last blog, the ABLE act allows an individual with a disability to create a savings account that can hold up to $100,000 without disrupting his or her means tested benefits (technically a Michigan ABLE account can hold up to $500,000, but anything over $100,000 will disrupt means tested benefits). If the individual currently receives benefits through SSI and/or SSDI, and had the disability before the age of 26, he or she is automatically eligible to establish an ABLE account. The state allows annual deposits into the account of up to $14,000 (for 2016 and 2017 – this amount will be adjusted, it is the same as the annual individual gift tax exclusion amount), and an individual making the deposit can receive up to a $5,000 deduction on his or her taxes for a single return ($10K for joint filers).
The funds from an ABLE account can be used for “qualified distributions,” which includes paying for expenses related to education, housing, transportation, health, legal fees, assistive technology and personal support services, and more; this is much less restrictive than funds held in a special needs trust. With special needs trusts if assets are used to pay for housing, the individual’s benefits will be decreased (usually by around $300). One planning tip that was mentioned at a conference I was at a couple months ago was to have the special needs trust transfer assets to the ABLE account, and then use the ABLE account funds to pay for at least part of the housing; this way means tested benefits are not disrupted, and the individual gets the help they need with housing costs.
While this is now up and running in Michigan, many suggest waiting to opening an account here for now. The Michigan ABLE act is not yet completely put together like the act that our neighbor, Ohio, has done; so it might be best waiting a bit. For example, when this passed in Michigan, there was not any funding allocated for it so they had a very difficult time getting anyone to hold these accounts; Ohio allocated around $10MM, which enabled it to hit the ground running. Additionally, there are not any procedures in place right now in Michigan for how these accounts are to be used, so you may put money in, but it’s unknown how you get money back out. If you would like to fund one of these accounts now, you can start in Ohio (they offer reciprocity, although you will not get the tax deduction as Ohio does not offer that), and then transfer it here when Michigan is a bit more established.
In summary, the ABLE account will be another tool in the tool belt of families with a child that has special needs, but it will not be a stand-alone problem solver. To find out more about the program here in Michigan, check out this link: