Pennsylvania ABLE: Providing for our Special Needs Loved Ones

By Colin B. May, Esquire
Estate Planning Attorney

As a friend, parent, grandparent, or sibling of a person with a physical or mental disability, you know that we define our loved ones not by any particular limitation, but by who they are and what they bring to our lives. We share in times of joy and help one another through difficult times. And yet, we recognize that each person in our lives faces challenges that are unique and different from our own.

At our firm, we assist families using a number of planning tools and strategies suited to their specific goals. In past articles, we have discussed the use of special needs planning vehicles such as Supplemental Needs Trusts, Medicaid Asset Protective Trusts and any number of trust structures tailored to a person’s particular needs. Our goal with special needs planning is to preserve assets for our family while being cognizant of the important public programs for which they qualify. Many of these tools focus on how to create security and care when we are no longer able to, which leads many to ask: how can I provide for my loved one today?

Achieving A Better Life Experience

In December 19, 2014 President Obama signed the federal ABLE program into law, which was later adopted by Pennsylvania on April 18, 2016. The program officially opened in our state on April 3, 2017. ABLE stands for “Achieving A Better Life Experience,” and, as the name suggests, allows family and friends to contribute to loved ones without the fear of affecting their eligibility for public benefits.

In general, the Pennsylvania ABLE program provides individuals with qualifying disabilities, and family and friends, with a tax-free vehicle to save for that person’s disability-related expenses, while ensuring that they continue to qualify for public benefits. A parent, guardian or person appointed by a parent or guardian, a trustee of a trust for which an eligible individual is the beneficiary, or the eligible individual themselves may open an ABLE account.(1) For complete information on how to establish an ABLE Account visit paable.gov.

After an account is established, a family member, friend, or the person with a qualifying disability may contribute up to a combined $15,000 per year for the benefit of the individual.(2) Once funded, the account owner is able to use the account to pay for disability-related expenses without having to pay state or federal tax on the growth of the account.(3) Additionally, contributions can be deducted from state income tax.(4)

Who Qualifies?

A person who is entitled to Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) based on a disability that began prior to their 26th birthday is considered an “Eligible Individual” for purposes of the Act. Note that entitlement to SSDI and SSI will be sufficient: the person does not need to be receiving such benefits. Nonetheless, a person who is not entitled to SSI or SSDI may still qualify by self-certifying that they have a similarly severe disability that began before their 26th birthday, so long as this meets certain criteria in the Social Security Act.

What Can I Use the Account For?

Once created, you must use the ABLE Account to pay Qualified Disability Expenses. A Qualified Disability Expense is one which was incurred at the time a person qualified as an Eligible Individual (see above), and the expense related to that person’s disability. There is no requirement that such expenses be “medically necessary” nor is there any requirement that such funds be used for the sole benefit of the Eligible Individual. Despite this level of flexibility, it is important that ABLE Account funds only be used for Qualified Disability Expenses, as non-qualified expenses may be subject to income tax, penalties, and create disqualification for public benefits. For this reason, it is critical to consult with a knowledgeable professional before establishing or using an ABLE account.

Will Having an ABLE Account Mean I Won’t Need An Estate Plan?

The short answer is “no.” The ABLE Account is a powerful tool that can be used in conjunction with, and in addition to, an estate plan. And, like any single tool, there are limitations. For instance, the question of who continues to care for a disabled loved one if a primary caregiver passes away or falls ill remains unaddressed. Families looking to provide a substantial gift or inheritance to a disabled loved one, with the types of built-in protection necessary for that person’s needs, are still best served by using a Supplemental Needs Trust as part of a comprehensive estate plan. In fact, we can realize tremendous tax and protective benefits by using a combination of these tools that includes the ABLE Account. Ultimately, what type of planning will work best for you and your loved ones will depend on your own unique circumstances.

To discuss what type of planning might be appropriate for you and your family, please contact us for a consultation.

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(1) Pennsylvania ABLE Act § 501.
(2) This annual limitation is updated annually and is tied to the annual gift tax exclusion under IRC § 2503(b). IRC § 529A.
(3) IRC § 529A; Pennsylvania ABLE Act § 702(a).
(4) Pennsylvania ABLE Act § 304.2(b)(1) (as amended October 30, 2018).

About Our Law Office

At the Estate Planning Centers at Coulter & May, P.C., we devote our practice to estate planning and assisting families through such transition times with estate and trust administration counseling. We offer guidance and advice to our clients in every area of estate planning, and offer comprehensive and personalized estate planning consultations. For more information or to attend an upcoming seminar or to book a consultation directly, please contact us at (412) 253-7526 or visit us online at www.estateplanningcenters.com.

Disclaimer: The information presented in this article is a conversational summary of a complex area of law and should not be construed to constitute legal advice. No person should rely upon the content of this article for making any decisions, and should instead consult with appropriate legal and tax professionals.