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How Does an ABLE Account Fit into Special Needs Planning?

If a special needs beneficiary is included in your estate planning considerations, you have likely incorporated a special needs planning component into your comprehensive estate plan. When gifting to a loved one with special needs, every decision must be carefully thought out to ensure that you do not inadvertently threaten the beneficiary’s eligibility for crucial government assistance programs. One tool that you may wish to consider incorporating into your special needs plan is an ABLE account. To help you evaluate your options, a Murfreesboro estate planning attorney at Bennett | Michael | Hornsby explains the role of an ABLE account and how one might fit into your special needs planning component.

Understanding Special Needs Planning:

Typically, the primary focus of a basic estate plan is who will receive which assets from the estate upon the death of the owner. If oneMurfreesboro divorce attorney of your chosen beneficiaries has special needs, however, additional consideration is required because making direct gifts in your estate plan can do more harm than good. 

Many individuals with special needs rely heavily on government benefit programs such as Medicaid and SSI. These programs have both income and asset caps that cannot be exceeded by an applicant or participant. Once an individual with special needs reaches age 18, he or she is legally considered an adult. As such, a direct gift of money or assets will be considered when determining eligibility for these assistance programs and could jeopardize eligibility for a beneficiary currently receiving benefits. It is for this reason that special needs planning is crucial when you wish to provide financially for a child, grandchild, or other loved one with special needs within your estate plan.

What Is an ABLE Account?

An ABLE Account is a tax-advantaged savings account for individuals with disabilities or special needs. ABLE Accounts were made possible by the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act, commonly known as the ABLE Act. The ABLE Act was intended to “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”

How Does an ABLE Account Work?

The beneficiary of an ABLE account is the owner of the account; however, contributions can be made by anyone, including the beneficiary, family members, or even a Special Needs Trust (SNT). All contributions must be made using post-tax dollars and are not tax deductible for purposes of federal taxes. Some states, however, allow for state income tax deductions for contributions made to an ABLE account. One of the primary benefits, however, to creating an ABLE account is that the income earned by the account is not taxed. Up to $100,000 may be held in an ABLE account without impacting eligibility for benefits available through federal means-tested programs, such as Medicaid and SSI. There is also a cap of $350,000 that may be held in a Tennessee ABLE account.

Withdrawals from an ABLE account are not taxed if the money is used for a Qualified Disability Expense (QDE), such as transportation, assistive technology, health and wellness, and employment support. Finally, you (and others) can make tax-free contributions to an ABLE account up to the yearly exclusion amount, set at $18,000 for 2024.

Who Is Eligible for an ABLE Account?

To be eligible for an ABLE Account the account owner must have a disability that began on or before his/her 26th birthday. The account can be opened after the individual with special needs turned 26 years old; however, the age of onset of disability must have been before age 26. In addition, they must meet one of the following criteria:

  • Be eligible to receive Supplemental Security Income (SSI)
  • Be eligible to receive Social Security Disability Insurance (SSDI)
  • Been diagnosed by a qualified physician with a physical or mental disability resulting in marked and severe functional limitations that is expected to last no less than 12 months.

Contact a Special Needs Planning Attorney 

If you have additional questions about including an ABLE account in your estate plan in Tennessee, consult with an experienced Murfreesboro Special Needs Planning Attorney at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.


Dinah Michael