If you care for a disabled family member, estate planning is especially important. One of the measures you might put in place is a savings account to pay for future care. Traditionally, such accounts would be controlled by another person rather than the disabled person. However, times have changed. Modern savings plans now offer more control to the disabled, promoting their sense of independence. Below is some helpful information on using ABLE accounts in estate planning for disabled dependents.
What is an ABLE Account
ABLE stands for “Stephen J. Beck Achieving a Better Life Act” which was enacted in 2014. It is a federal act but the programs are administered by individual states. In Massachusetts, the plan is titled The Attainable Savings Plan. The account offers tax-deferred savings, similar to a college savings plan. Most importantly, the funds saved in this plan do not impact a recipient’s qualification for federal benefits such as SSDI and Medicaid. However, the recipient must meet the disability requirements under the Social Security Act to be eligible for this plan.
ABLE Account Contributions & Limits
Since amounts contributed to ABLE accounts are considered gifts, the maximum amount that may be deposited on behalf of your dependent is $15,000 per year. This matches the cash gift tax exclusion amount for 2018 and 2019.
Additionally, disabled dependents who earn wages and do not contribute to employer 401(k) and similar programs may contribute a certain amount of their own funds into the account. Those personal contributions may not be more than the Federal poverty line or wages earned. In 2018, that limit was $12,140.
Distribution of Funds
Funds in ABLE accounts can be used for expenses related to a dependent’s disability. Below are a few examples.
- Health Care Expenses
- Legal Fees
- Financial Services
- Living expenses (to accommodate the disability or improve quality of life)
When used for qualified expenses, the amounts disbursed are not taxed.
More on Using ABLE Accounts for Estate Planning for Dependents
ABLE accounts are popular both for the tax savings and for the added control given to recipients. Before you decide to create an ABLE account, be sure to discuss the pros and cons with your Massachusetts Estate Planning Attorney. Using ABLE accounts for estate planning for dependents can be a huge benefit, but only when used appropriately. Depending on your particular circumstances, it might not always be the best option for you and your disabled dependent. Schedule an appointment with our team to learn more.