In 2014, the Achieving a Better Life Experience (ABLE) Act was passed allowing for the creation of special tax-advantaged accounts for those with special needs. It is only now that these accounts, also called 529A Plans or ABLE accounts, are becoming available. Administered at the state level, these accounts closely resemble 529 College Education Savings Plans with several important differences.
The new 529A Plans are funded with after-tax dollars and those contributions can be invested within the constraints of the investment options made available by each state’s respective plan. All growth and earnings in the account are tax-exempt as long as distributions are made for “qualified disability expenses”, which are broadly defined.
In order to establish a 529A Plan, the beneficiary must be someone who is blind or diagnosed with a disability causing severe limitations before the age of 26. Recipients of SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) are eligible for 529A Plans as long as the disability began before age 26.
While these plans will never eliminate the need for, or primary benefits of, traditional Special Needs Trusts (SNT), there are certain features of the plans that make them appealing as a potential alternative for smaller asset levels or as a supplement to SNTs:
There are certain complexities to these plans that need to be considered:
Asset control – the original transferor can maintain control of the property in the limited partnership by retaining a very small GP interest.
Please feel free to contact Robert and/or Seth in our Wealth Strategies group if we can be of any assistance when deciding whether this strategy makes sense for you, or any of your clients.
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