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ABLE ACCOUNT LAW CHANGES BROADENING PROTECTIONS FOR SPECIAL NEEDS PLANNING

On December 19, 2014 President Obama signed into law a number of tax and financial measures to extend certain tax benefits. More specifically, the legislation enacted the Achieving a Better Life Experience (ABLE) Act of 2013, which amends section 529(e) of the United States Tax Code, to allow for tax-free savings accounts for individuals with disabilities. Almost a year later, almost to the day, both the Federal government and New York state both acted to expand the coverage under the ABLE Act. Prior to the most recent change, ABLE accounts had to be located in the same jurisdiction as the beneficiary.

 

The law also required state laws enabling such savings accounts. If the state did not have such enabling legislation, individuals in that state would not be able to set up such an account. On December 18, 2015, New York Governor Andrew Cuomo signed the New York Achieving a Better Life Experience (NY ABLE) Act allowing for such savings accounts in New York. On the same day that Governor Cuomo signed the NY ABLE Act, President Obama signed another spending bill that contained, among other things, legislative changes to the ABLE Act. More specifically, sections 302 and 303 of the bill allows for changes in what purchases or expenditures are permitted under the ABLE Act and allowed for beneficiaries to have such accounts in jurisdictions different than the one that they live in.

 

While one might reasonably believe that the NY ABLE Act is now not necessary, it still has much value as it allows for such accounts to exist within the state and thus subject to the various protections afforded under New York law. It would also draw in capital from other jurisdictions that do not have ABLE Act enabling legislation. All of these measures are part of an expansion of the laws that allow for the financial protections for financial and estate planning for those with special needs. Previous to the PATH Act, individuals with special needs who had savings accounts or other assets over a certain amount (generally, $2,000) would possibly be disqualified from certain governmental benefits. Savings in a PATH Act account will not jeopardize these benefits or eligibility for benefits.

 

REQUIREMENTS OF ABLE ACT ACCOUNTS

The account may be opened by the beneficiary, although any individual may pay into the account. Depending on the amount, contributions into the account may be tax deductible. In addition, you must be able to establish that the onset of your disability occurred prior to the age of 26. There is an important distinction that is worthy of note. The account holder (disabled individual) does not have to be younger than 26 to open the account, only that the disability began prior to the age of 26. There are special rules that go into effect after $14,000 per year is deposited into the account, although any number of individuals may deposit money into the account. Finally, only qualified disability expenses are permitted expenditures. In November, 2015, the Treasury Department issued interim guidelines that noted that state administrators do not have to strictly scrutinize all expenses, although it is still best for the account beneficiary to maintain receipts for all expenditures.

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