Gifting to Persons with Disabilities Using an ABLE Account

Maximizing Financial Security: How to Use ABLE Accounts for Special Needs Planning

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When planning for a loved one with disabilities, we emphasize the importance of balancing financial stability with maintaining eligibility for government benefits. ABLE (Achieving a Better Life Experience) accounts are one of the most valuable tools for achieving these goals. Here, we’ll explore how these accounts work, who qualifies, and why they’re a game-changer in special needs planning.

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What Is an ABLE Account?

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An ABLE account is a tax-advantaged savings vehicle designed to support individuals with disabilities. Created under the Achieving a Better Life Experience (ABLE) Act of 2014, these accounts allow families and individuals to save for qualified disability expenses (QDEs) without jeopardizing eligibility for critical government benefits like Supplemental Security Income (SSI) and Medicaid.

ABLE accounts are modeled after 529 college savings plans, enabling tax-free growth for funds used on disability-related expenses. They’re a significant step forward, empowering individuals with disabilities to have more control over their finances.

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Who Qualifies for an ABLE Account?

To open an ABLE account, an individual must:

1. Have a qualifying disability that began before age 26 (increasing to age 46 starting January 1, 2026).
2. Meet the Social Security Administration’s definition of disability or self-certify with a doctor’s letter confirming the disability’s onset date.
3. Be eligible for SSI or SSDI or otherwise meet the criteria for self-certification without receiving benefits.

Key Benefits of ABLE Accounts

Tax-Free Growth: Funds grow tax-free when used for qualified disability expenses.

1. Protection of Government Benefits: Assets in an ABLE account are exempt from SSI and Medicaid resource limits, up to $100,000 for SSI and $500,000 for Medicaid in Michigan.
2. Flexibility and Independence: Account owners can manage and use their funds for a wide range of QDEs, including housing, transportation, healthcare, and education.
3. Eliminating In-Kind Support and Maintenance (ISM) Penalties: Using ABLE funds for housing expenses avoids ISM penalties that could reduce SSI benefits.

How Do ABLE Accounts Work?

Funding Your ABLE Account

• Contributions must be in cash and are capped annually at $18,000 in 2024 (rising to $19,000 in 2025).
• Working individuals with disabilities may contribute additional earnings up to $14,580 (increasing to $15,060 in 2025).
• Funds from 529 college savings plans can be rolled over into ABLE accounts without penalties.

Qualified Disability Expenses (QDEs)

QDEs are expenses that help a person with a disability maintain their health, independence, and quality of life. They can supplement services and items provided by other programs, but they are not meant to replace them. Some examples of QDEs include:

• Housing (rent, utilities, property taxes, and homeowner’s insurance)
• Healthcare and assistive technology
• Education and job training
• Transportation and personal support services

Managing an ABLE Account

• ABLE accounts allow only one account per person.
• Beneficiaries or their designated representatives manage funds via a simple debit card system, making payments seamless.
• Account owners must keep receipts to document QDEs for potential audits by Social Security or the IRS.

ABLE Accounts vs. Special Needs Trusts

ABLE accounts complement but do not replace special needs trusts. While ABLE accounts are ideal for smaller sums and day-to-day expenses, special needs trusts are better for managing larger inheritances or settlements. Notably:

• Contribution Limits: ABLE accounts have annual and total limits, whereas first-party and third-party special needs trusts can hold unlimited funds.
• Medicaid Payback: Any remaining funds in an ABLE account after the beneficiary’s death may be subject to Medicaid payback, depending on the state. First-party special needs trusts also have a mandatory payback. However, third-party special needs trusts are exempt from this requirement, and any funds remaining after the beneficiary’s death typically goes back to the family members.

Gifting to an ABLE Account

When gifting to a loved one with disabilities, cash gifts or gift cards can jeopardize their eligibility for benefits. Instead, direct contributions to their ABLE account ensure compliance with government regulations while supporting their financial well-being. Options include:

1. UGift Program: Enables easy contributions without direct account access.
2. QR Codes for Contributions: Beneficiaries can provide donors with QR codes to streamline the gifting process and help the ABLE account administrators pair the gifted funds to the beneficiary’s account.

Why Housing Expenses Are a Game-Changer

One of the unique advantages of ABLE accounts is the ability to pay for housing without triggering a reduction in SSI benefits. By using ABLE funds for rent, property taxes, and utilities, individuals can avoid ISM penalties, maximizing their government support.

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Establishing an ABLE Account in Michigan

Michigan’s ABLE program is highly regarded for its user-friendly platform and robust features. It:

• Allows non-residents to participate.
• Offers investment options with customizable risk levels.
• Protects funds from Medicaid payback (current policy in Michigan, subject to change).

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An Important Special Needs Planning Resource

ABLE accounts provide a critical tool in special needs planning, offering flexibility, independence, and financial security for individuals with disabilities. Whether you’re a parent, trustee, or individual beneficiary, understanding and utilizing ABLE accounts can make a significant difference in enhancing quality of life while preserving essential benefits.

If you have questions about ABLE accounts or need guidance on integrating them into your broader financial strategy, contact Michigan Law Center today. Let us help you create a comprehensive plan for your loved one’s future.