Recent Changes to ABLE Accounts and Why Your Client Might Want One

By Guest Author, Evelynn Passino, J.D. – Executive Director of Pooled Trust Services

Florida recently joined a handful of other states in making a change to its ABLE statute that gives clients a little more control over their money when they die. If you are unfamiliar with ABLE accounts and how they can be paired with a trust, you can get up to speed by reading one of our recent articles on this topic.

Trusts & ABLE Accounts Have Different Medicaid Payback Obligations

A question we are often asked is “what happens to my money when I die?” In the trust world, a combination of things may occur. Special needs trusts generally have an obligation to repay Medicaid up to the amount left in the trust. This is the trade-off for allowing the client to have access to the funds and remain qualified for needs-based government benefits. Pooled trusts are authorized by federal law to retain some (or potentially all) of the funds that remain, but some states limit the amount a pooled trust can retain. Because pooled special needs trusts must be managed by a non-profit entity, this was Congress’ way of encouraging these entities who provide trustee services at a much lower rate than private banks. Any money remaining after payback and retention can go to designated remainder beneficiaries or to the client’s estate.

ABLE accounts fall into one of two categories on this subject. In some states (Florida was formerly one of them), Medicaid can make a claim to the funds left in the account at death. The rationale for allowing recovery was the same as noted above. In Florida, the law was changed in recent years to prevent that from happening,[1] but the relevant language was set to expire on July 1, 2019, changing the law back to its 2016 state and allowing Medicaid to once-again make a claim on the ABLE account itself. Thanks to a bill passed unanimously by the House and Senate, and approved by Gov. DeSantis on June 7, 2019, the language that expressly bars Medicaid from claiming the funds in an ABLE account is now permanent.[2] Florida joins California, Maryland, Pennsylvania, Oregon in adding a layer of protection to ABLE accounts at death.

What This Means and How an ABLE Account Could be to Your Client’s Advantage

Upon the ABLE account holder’s death, the funds can be used to pay outstanding expenses, such as funeral and burial costs (unlike a special needs trust which is prohibited from making distributions after death), and then they can either go to another ABLE account or to the account holder’s estate.[3] If the funds reach the estate, they may be subject to estate recovery, but that does not mean Medicaid will get the funds. If the account holder is survived by a spouse, minor child (under 21), or disabled child, the Medicaid agency will not enforce the claim, and in some cases they may waive their right to recovery if it would cause a hardship on the heir(s).[4]

Currently, there is an annual contribution limit of $15,000 to ABLE accounts, but these funds can be rolled over year to year. This will not have a negative impact on eligibility for benefits like SSI and Medicaid until the account balance reaches $100,000. Because SNTs have an obligation to repay Medicaid while ABLE accounts in certain states do not, it may be advantageous to a client to make contributions to that account (or ask their trust to make contributions on their behalf).

The Effort to Make More People Eligible for ABLE

On a related note, a second change is potentially on the horizon. One restriction that has caused disappointment to clients of ours is the age restriction. In order to establish an ABLE account, onset of disability must be prior to age 26. The age of 26 was chosen by Congress to limit the impact of certain tax-advantages afforded by ABLE accounts but is otherwise arbitrary. Ultimately it just prevents those with disabilities that occurred later in life from taking advantage of this wonderful program. The ABLE Age Adjustment Act aims to raise the age to 46 but has not progressed past the U.S. Senate despite having bi-partisan support. This is not the first bill of its kind, so it may die in Committee once again; however, due to the under-utilization of the program and the need for more account holders in order to keep ABLE programs sustainable and inexpensive,[5] perhaps Congress will finally expand eligibility.

Pooled Trust Services fully supports the use of ABLE accounts and recommends them to clients almost every day. We will work with any ABLE provider a client chooses, but we generally recommend clients to STABLE because their program is available in all 50 states and they give clients the ability to access ABLE funds using a True Link card.

[1] Fla. Stat. 1009.986(7)(b)

[2] HB 6047

[3] https://www.ableunited.com/?faq=what-happens-after-the-death-of-a-beneficiary-2

[4] Fla. Stat. 409.9101(6), (8).

[5] https://www.nytimes.com/2019/06/07/your-money/able-accounts-savings-disabled.html