The Ramirez family, like many in San Diego, experienced a sudden shift in their financial landscape. David, a vibrant college student, was involved in an accident that resulted in a traumatic brain injury. Consequently, his parents, Maria and Robert, faced mounting medical expenses and the daunting prospect of long-term care costs. They quickly discovered that David’s income from a part-time job threatened his eligibility for crucial government benefits like Supplemental Security Income (SSI) and Medi-Cal. Maria and Robert felt trapped, desperately seeking a solution that would allow David to maintain some financial independence without jeopardizing his essential support. Little did they know about the potential of an Achieving a Better Life Experience (ABLE) account, a tool specifically designed for individuals with disabilities and their families.
What Exactly is an ABLE Account and Who Qualifies?
An ABLE account is a tax-advantaged savings account for eligible individuals with disabilities. It allows them to save up to $18,000 annually without affecting their eligibility for SSI, Medi-Cal, or other public benefits. The accounts were established under the federal Achieving a Better Life Experience Act of 2014, with states administering the programs. Ordinarily, income and assets exceeding certain limits can disqualify someone from needs-based government assistance programs. However, ABLE accounts provide a loophole, allowing for savings growth without penalty. To qualify, an individual must have a disability that began before age 26, and they must meet the Social Security Administration’s definition of disability. Furthermore, they need to be eligible for SSI or have a medically determinable physical or mental impairment that substantially limits their ability to work.
How Can an ABLE Account Benefit Someone Like David Ramirez?
For David, an ABLE account presented a lifeline. The account allowed Maria and Robert to deposit funds from a settlement received due to the accident, as well as contributions from family and friends. These funds could be used for qualified disability expenses—things like medical care, assistive technology, housing, transportation, education, and even everyday living expenses. Importantly, the first $100,000 in contributions doesn’t affect SSI eligibility, offering substantial flexibility. Consequently, David could continue to receive vital support while building financial independence. “It’s about empowering individuals with disabilities to lead fuller, more independent lives,” notes Ted Cook, an estate planning lawyer specializing in trusts and special needs planning in San Diego. “ABLE accounts are a crucial part of that equation.”
What Types of Investments are Allowed Within an ABLE Account?
The investment options within an ABLE account vary by state, but typically include low-risk options like age-based portfolios, target-risk portfolios, and individual investment options. Many states offer professionally managed portfolios to simplify the investment process. Conversely, some states offer more control, allowing individuals to choose their own investments. It’s crucial to select investments appropriate for the individual’s risk tolerance and long-term financial goals. Furthermore, it’s important to understand the fees associated with each investment option. “Choosing the right investments is key to maximizing the growth potential of an ABLE account,” emphasizes Cook. “It’s also important to consider the state’s tax benefits, as some states offer a state income tax deduction for contributions.”
What Happens to the Funds in an ABLE Account After the Beneficiary’s Death?
A significant concern for many families is what happens to the funds in an ABLE account after the beneficiary’s death. Ordinarily, the funds are treated as an asset for Medicaid recovery purposes. However, states have different rules regarding Medicaid recovery. Nevertheless, some states allow for a refund of the funds to the beneficiary’s estate, while others require the funds to be used to reimburse Medicaid for the cost of the beneficiary’s care. “It’s crucial to understand your state’s rules regarding Medicaid recovery,” advises Cook. “Proper estate planning can help minimize the impact of Medicaid recovery on the beneficiary’s estate.” A special needs trust can be used in conjunction with an ABLE account to ensure that any remaining funds are used to benefit the beneficiary’s family.
What are Some Common Mistakes People Make with ABLE Accounts?
Despite the benefits, several common mistakes can hinder the effectiveness of an ABLE account. One common error is exceeding the contribution limits, which can jeopardize SSI eligibility. Another mistake is using the funds for non-qualified expenses. Furthermore, neglecting to update beneficiary designations can lead to complications after the beneficiary’s death. “Proper record-keeping is crucial,” emphasizes Cook. “It’s also important to understand the rules and regulations associated with ABLE accounts.” Many states offer resources and educational materials to help individuals and families navigate the complexities of ABLE accounts. Table 1 outlines common pitfalls to avoid:
| Mistake | Consequence | Prevention |
|---|---|---|
| Exceeding Contribution Limits | Loss of SSI Eligibility | Track contributions carefully; consult with a financial advisor |
| Using Funds for Non-Qualified Expenses | Tax Penalties; Loss of Benefits | Understand qualified expenses; maintain detailed records |
| Failing to Update Beneficiary Designations | Complications After Death | Review and update designations regularly; consult with an estate planning attorney |
How Did Maria and Robert Successfully Utilize an ABLE Account for David?
After researching ABLE accounts, Maria and Robert contacted Ted Cook to establish one for David. Cook assisted them in navigating the application process and selecting appropriate investment options. They also established a special needs trust to complement the ABLE account. The trust ensured that any funds remaining in David’s estate after his death would be used to benefit his family. Furthermore, they worked with Cook to create a comprehensive estate plan that addressed David’s long-term care needs. Consequently, David was able to maintain his SSI benefits while building financial independence. “ABLE accounts are a powerful tool for individuals with disabilities and their families,” concludes Cook. “However, proper estate planning is essential to ensure that the account is used effectively.” Maria and Robert’s story is a testament to the importance of seeking professional guidance and proactively planning for the future. Blockquote: “Planning isn’t about preparing to die; it’s about preparing to live.”
“Planning isn’t about preparing to die; it’s about preparing to live.”
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(619) 550-7437
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