Special Needs Trusts and The ABLE Act

If you represent or care for a disabled person, you are likely already aware of special needs trusts. These trusts allow litigation proceeds, and other contributions, to be set aside so that the funds can be protected for the disabled beneficiary, while still maintaining income eligibility for benefit programs such as SSI, Medicaid, and other important benefit programs. Such trusts, however, can be restrictive in their payments if benefit eligibility is to continue. Primarily, beneficiaries are not permitted to have access to assets outside a special needs trust above a limit set by each state. In Alaska, having more that $2,000 in assets would prevent a disabled beneficiary from receiving some benefits.

A recently passed federal statute has now tackled this problem: The ABLE Act. This law allows states to set up their own programs permitting a disabled person to set up a separate account, much like an IRA or HSA, that would not count as an asset in the income eligibility analysis. Alaska is one of just a handful of states that have adopted this legislation. With Gov. Walker having just signed the bill into law in August,2016, the application process in Alaska is still being ironed out.

Here are some key elements of the law. The disability must have occurred before age 26, and many types of disabilities are permitted, including physical, hearing, mental health, and other disabilities. Total annual contributions may not exceed the federal gift tax limit, now at $14,000. A total of $400,000 may be contributed. A beneficiary may have only one account, but anyone can contribute to the account. Neither the funds contributed to the account,nor the interest earned in the account, are deemed to be taxable. The funds can be spent on items such as housing, personal support, assistive technology, and many other needs, including items normally not permitted under a special needs trust.

Enrollment in Alaska’s ABLE Act program is expected to open in early 2017. The Dept. of Revenue will provide updates as the program is developed at: http://dor.alaska.gov/ABLE-Program.aspx.