Many people know that New York City special needs planning attorneys help the parents and guardians of disabled children and adults with various estate planning issues, like establishing guardianships and special needs trusts. But in addition to a comprehensive estate plan, there’s an additional financial tool that many special needs parents aren’t aware of—one that can vastly improve the quality of life of their disabled loved one today and in the future. It’s called an ABLE account, short for the Achieving a Better Life Experience Act that created it.

Many disabled people qualify for government benefits which may include Social Security disability insurance “SSDI”, Supplemental Security Income “SSI”, Medicaid, and more. Many of these programs are needs-based or income-based. Qualifying for and maintaining certain government benefits require having extremely limited income and/or assets, essentially forcing the disabled individual into a life at poverty level. While special needs trusts are one way money can be set aside for the benefit of a disabled person and not jeopardize government benefits, setting up an ABLE account is an additional option to set money aside for qualified disability-related expenses enabling them to live a fuller life.

What is an ABLE account?

ABLE accounts offer a way for eligible individuals with disabilities to save for and spend on Qualified Disability Expenses “QDE” while keeping other government benefits. As long as the earnings are used for QDEs, they are tax-deferred and tax-free.

An ABLE account can be opened by an eligible disabled person, their parent or guardian, or their designated agent with power of attorney– and can be opened with as little as $25 (or $15 if the contribution is through a payroll deduction). You choose among five account options: four (4) investment options (from aggressive to conservative) and/or a checking account option that enables easy withdrawals via a debit card or check. Contributions can be made by the disabled individual or third parties.

Who is eligible for a NY ABLE account?

First and foremost, the account beneficiary must be a resident of New York State and must have been diagnosed with their disability before the age of 26. In addition, they must be entitled to either SSI or SSDI as a result of their disability. Alternatively, if they aren’t entitled to SSI or SSDI, then they must meet one (1) of these additional requirements:

  1. Have a “written diagnosis from a licensed physician documenting a medically determinable physical or mental impairment which results in a marked and severe functional limitation that can be expected to last for at least a year or can cause death”; OR
  2. Be classified as blind; OR
  3. Have a disability which is included on the Social Security Administration’s List of Compassionate Allowance Conditions.
What is considered a Qualified Disability Expense?

NY ABLE account funds can only be used for expenses that relate to the individual’s disability and will maintain or improve the quality their quality of life. QDEs are very broad in nature and include an extensive list of categories such as:

  • “Education;
  • health and wellness;
  • housing;
  • transportation;
  • legal fees;
  • financial management;
  • employment training and support;
  • assistive technology;
  • personal support services;
  • oversight and monitoring;
  • funeral and burial expenses.”

There are tax consequences and penalties if the funds are withdrawn for a non-qualified disability expense. It is advisable to maintain excellent records and receipts for how all account withdrawals were used.

9 More things to know about NY ABLE accounts
  1. “Balances under $100,000 are excluded from the SSI resource limit. But if the New York ABLE account balance causes the SSI resource limit to be exceeded, SSI benefits will be suspended until the account balance no longer exceeds the resource limit.”
  2. Funds withdrawn from a NY ABLE account should be spent on the QDE before the end of the month in which they were withdrawn.
  3. Funds from a 529 college savings program may be moved or rolled over into an ABLE account– though it is advisable to speak to a tax advisor prior to doing so.
  4. An individual can only have one (1) ABLE account.
  5. Upon the beneficiary’s death, the NY ABLE program will report the balance left in the ABLE account (after funeral expenses and all other qualified disability expenses have been paid) to the New York State Department of Health which “will determine the need for any Medicaid recapture.” Speak to your tax advisor and/or estate planning attorney regarding this issue. After New York State “recaptures” the money it paid in Medicaid benefits on the disabled person’s behalf, there will likely be little to nothing left in the ABLE account for the disabled person to leave to their loved ones.
  6. The maximum allowable annual contribution to an ABLE account is $16,000 per year. However, it may be greater for accounts of those who earn an income. “The additional annual contribution is equal to the federal poverty line for a one-person household ($12,880 in 2022) or the account owner’s annual income, whichever is less.”
  7. The maximum account balance for a NY ABLE account is $520,000.
  8. An individual can have a special needs trust and a NY ABLE account.
  9. NY ABLE must be notified if the individual no longer meets eligibility status.

MUST HAVE PLANNING: Choosing and timely implementing the right special needs trust and/or NY ABLE account for your disabled loved one is crucial to ensuring their continued eligibility for government benefits and safeguarding funds to provide them with a better quality of life. Equally important is having a comprehensive special needs estate plan in place.

For more information, download our FREE report of 10 Must Have Documents for All Parents of Special Needs Children.

At Sverdlov Law, we are dedicated to helping our clients get the peace of mind that comes with getting their affairs in order, preserving their assets, and protecting their families. From our office on Wall Street, we represent clients throughout New York City and New York State in all aspects of estate planning, estate administration, Medicaid planning, elder law, and business succession matters.

Contact us to book your estate planning strategy session today or for additional resources regarding special needs trusts and other important matters.