Have you heard of a California ABLE Account? Achieving a Better Life Experience (ABLE) accounts are fairly new to the world of special needs planning and offer disabled individuals a tax-free savings tool that is comparable to a 529 college savings plan. The ABLE account offers the benefit of tax-free savings while also safeguarding a disabled individuals’ government benefits eligibility.

ABLE accounts do, however, have some limitations. The accounts may only be created for an individual whose disability was established prior to him or her reaching the age of 26. Additionally, the individual must fall within Social Security’s defining terms for those facing significant functional limitations stemming from a disabling condition. Furthermore, there are contribution limits regarding ABLE accounts. The total annual contribution limit to an ABLE account in 2020 stands at $15,000.

Due to the restrictions on a California ABLE account, a special needs trust should also be considered for an individual with a disability. This is especially true if an individual with special needs is ineligible for a California ABLE account because he or she does not have a disability established before the age of 26. ABLE accounts can, however, be successfully used in tandem with a special needs trust, for those individuals who qualify for both.

In fact, ABLE accounts can be most beneficial in providing supplemental support to individuals with disabilities who want to remain eligible to receive government benefits, such as SSI or Medicaid. Special needs trusts may be subject to strict rules or costly administration.  Further some distributions may be subject to strict rules established by Social Security in regard to using the trust distributions which may decrease or otherwise impact benefits. These rules are known as “In-Kind Support and Maintenance” rules.

Due to the fact that special needs trusts are subject to these rules, ABLE accounts offer more flexibility in helping a special needs individual pay for housing costs and related expenses, often without reduction of benefits. You may, therefore, want to establish an ABLE account to pay for housing expenses, and a special needs trust for other expenses.

For more information on the important topic of the California ABLE account, please call our law firm to schedule a meeting time.