Indiana took a huge leap to encourage independence for disabled adults when InvestABLE Indiana was opened to the public on July 28, 2017. This state program makes it possible to set aside funds for disabled Hoosiers without jeopardizing their eligibility for government benefits.
In the past, disabled individuals had limited means to accumulate resources/funds to help with their quality of life and care. Many rely on public benefits like SSI (Supplemental Security Income – a form of Social Security disability) and Medicaid for financial support and healthcare. The 2018 maximum monthly SSI benefit in Indiana is $750. This rarely covers all necessary care, programming, and expenses.
SSI has a strict means test that cuts benefits dollar-for-dollar if income or assets exceed allowable maximums. SSI can classify housing, food, and child support as income, even when no cash is received. Liquid assets above $2,000 must be spent down, so personal injury settlements, medical malpractice recoveries, inheritances, and/or monetary gifts often cause ineligibility.
To address this problem, in 1993, Congress enacted legislation that allowed persons with disabilities to preserve Medicaid and SSI eligibility through Special Needs Trusts (SNT), and third-party or pooled trusts, such as the Arc Pooled Trust. SNT’s could also be created by a court to protect assets for individuals with disabilities. In cases where an individual received an inheritance or personal injury settlement, a court could authorize the creation of an SNT to preserve the disabled person’s eligibility. However, SNTs are expensive to establish and manage, putting them out of reach for a large number of families.
In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, which was adopted by Indiana in 2016. ABLE authorized the creation of 529A Accounts for the disabled. The accounts grow tax-free, similar to 529 college savings plans. The Act recognized that individuals with disabilities have very limited avenues to save and allow for further independence. The Act further noted that disabilities can cause significant extra costs. Among the explicit purposes of ABLE are:
- Encourage and assist individuals and families to save private funds to support the disabled in order to foster independence and quality of life.
- Allow private funding of “qualified disability expenses” to supplement – not supplant – SSI benefits.
The ABLE Act allows eligible individuals and their families to establish 529A accounts (also called “ABLE Accounts”) that do not affect eligibility for SSI, Medicaid, and other public benefits. To open a 529A account, a Hoosier of any age must have been diagnosed with a disability before age 26, and be currently eligible for Social Security disability benefits.
Funds in the account may be spent on any “qualified disability expense.” Broadly defined in the law, this can include: education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services, and other expenses which help improve health, independence, and/or quality of life.
The ABLE Act allows $14,000 in total annual contributions from all sources. An ABLE Account can accumulate as much as $100,000. The contribution and maximum account number are adjustable for inflation. The tax advantages are only allowed for the account owner (the individual with disabilities). Contributions to an ABLE Account are not federally tax deductible.
When the disabled individual dies, a State may file a claim to remaining funds equal to the amount spent on the individual by the state Medicaid program (Medicaid-Pay-Back) after creation of that ABLE account. The pay-back amount excludes amounts paid by the individual as premiums to a Medicaid buy-in program.
Each individual and family will need to project possible future needs and costs over time, and to assess their risk tolerance for possible future investment strategies to grow their savings. Unlike SNTs or Pooled Income Trusts, ABLE accounts provide more choice and control for the individual and the family. The cost of establishing an account will likely be considerably less than an SNT or a Pooled Income Trust. ABLE accounts can be used in combination with SNT’s and pooled trusts.