The ABLE Act – The Drawbacks

            Last week I told you about the ABLE Act that was passed by Congress and signed by President Obama just before the Christmas holiday.  It sounds great, allowing disabled individuals to set up savings accounts, similar to a 529 plan, without losing government benefits.  But is it all its “cracked up to be”?  Maybe not.

             There are some serious flaws.  First of all, the accounts are to be set up in the name of the disabled individual giving that person complete access to the account.  This might work fine for people whose disability is of a physical nature, however, families may be reluctant to fund these accounts where the disability is such that the person cannot exercise good judgment or fiscal responsibility.  The security of a trust may still be desirable.

             Additionally, what Congress never highlighted, and understandably so, is the fact that there is a payback provision in the law.  Under estate recovery laws, if there is any money left in the account at the time of the individual’s passing, any state providing benefits is entitled to be reimbursed up to the amount of benefits paid out on the individual’s behalf, before any money can be distributed to heirs.

             Unknowing families could subject their ABLE Act contributions to a payback provision that they are not otherwise obligated to, if they set up a third party special needs trust.  So while the law is a positive step for some, there is a certain element of self-interest involved in the federal government’s passage of this law.

             So, is the ABLE act a positive or a negative?  The answer is it depends.  For some it will be an opportunity but for many others it will be only somewhat helpful or not at all helpful.   What is clear is that it will not eliminate the need for special needs trusts, the motivation for some who supported the bill, simply because there are still advantages and protections built into an SNT that are not available under this new law.