The ABLE Act gives individuals with disabilities a way to save money without jeopardizing important benefits like Medicaid and SSI. New Jersey offers its own ABLE program, with rules and features that families should understand before opening an account. Knowing how it works can make a meaningful difference in long-term planning.

Recently, the federal government passed a law called the ABLE Act.  The word ABLE is an acronym that stands for Achieving a Better Life Experience.  This week the New Jersey Legislature and Governor Christie signed into law a statute that implements the federal ABLE Act in New Jersey.  Starting in October 2016, disabled individuals will be able to open ABLE Act accounts.

The Social Security Administration defines disability as the inability to engage in substantially gainful employment as the result of a condition that is expected to result in death or to continue for a period of more than twelve months.  Disabled individuals are potentially eligible for a slew of government benefits, such as Social Security disability benefits, Supplemental Security Income (SSI), Medicare, Medicaid, food stamps, and housing assistance.

Some of these programs, such as SSI and Medicaid, are means-tested, meaning that the beneficiary must have a limited amount of income and resources in order to qualify for these programs.  The ABLE Act is primarily focused at the means-tested government programs for which a disabled individual may be eligible.

For instance, in order to qualify for Medicaid benefits, a Medicaid beneficiary must have less than $2,000 in countable resources.  A resource is what you and I typically call an asset, for instance, a bank account, a brokerage account, an annuity, are all examples of resources.  Some resources are non-countable resources, such as a home and a car, but most resources are countable resources, such as bank accounts and stock.

The ABLE Act allows the various states to offer an account, let’s call it an ABLE account, into which countable resources can be placed and those resources will no longer count against the Medicaid beneficiary’s eligibility for Medicaid benefits.  Accounts such as this are very helpful because means-tested government benefits provide a bare minimum of assistance to people with disabilities.  It would be difficult, if not impossible, for a person with disabilities to live off the assistance these government benefits provide.

An ABLE account has a good number of restrictions.  The state in which the disabled person lives must offer ABLE accounts.  With the law that our Legislature enacted this week, New Jersey will now offer ABLE accounts, starting October 2016.

An ABLE account can only be opened for an individual who was classified as disabled before age twenty-six.  The individual with disabilities can only have one ABLE account, so multiple family members cannot open their own ABLE accounts for the individual.

In any given year, only the amount of the annual exclusion gift, currently $14,000, can be placed in the ABLE account.  The gift does qualify as a present interest gift to the disabled individual if a third-party places the money in the account, though the disabled person can place his own assets in the account.  If one cent more than $14,000 per year is placed into the account, then the entire account is disqualified as an ABLE account.

The maximum amount that the account can contain is $100,000 if the disabled person is receiving Supplemental Security Income, which is the federal cash assistance program.  If the account holds more than $100,000, then the person is disqualified from SSI.  If the beneficiary is not receiving SSI, then the maximum amount that the account can contain is limited to the State’s 529(b) college savings plan limit, which in New Jersey is currently $305,000.

Any money remaining in the account at the time of the beneficiary’s death is subject to estate recovery from the State for the total amount of Medicaid benefits paid to the disabled person during his lifetime.

Given the significant limitations of an ABLE account, these accounts will not be a panacea for disabled persons looking for a solution to their eligibility requirements; however, the accounts can be viewed as one tool in their toolkit.

The New Jersey ABLE program can be a valuable planning tool for families looking to balance savings and benefits. Understanding the rules and using the account properly helps you get the most out of what it offers.