What is a STABLE Account for Disabled Beneficiaries?

If you have a loved one with a disability, you are aware of the unique financial issues that go along with planning for the well-being of someone with special needs. On one hand, many people with special needs or a disability are unable to become self-supporting.  They have expenses for medical treatment, adaptive devices, and therapy, among many others.  Family members may be inclined to put aside extra savings to provide for these lifelong needs. On the other hand, many disabled individuals need and rely on financial assistance from the government, and qualifying for benefits typically means that beneficiaries cannot own more than a very modest amount of assets. A STABLE account may be able to help resolve these concerns. What is a STABLE account, and how exactly does it work?

What is a STABLE Account?

Congress enacted the Achieving a Better Life Experience (ABLE) Act in 2014. The ABLE Act authorizes a state to establish and maintain “a qualified ABLE program,” defined in Section 529A of the Internal Revenue Code (IRC). Ohio passed corresponding legislation in December of 2014, with an effective date of June 1, 2016, authorizing Ohio residents to establish a STABLE account.  A STABLE account is an investment account with the flexibility of a savings or checking account.  An individual (or an authorized legal representative on his or her behalf) can withdraw and spend money as needed, but he or she can also save and grow money for long-term qualified expenses, including education, housing, transportation, employment support, health and wellness and other miscellaneous personal expenses.  The key feature of the STABLE account is that the money in the account does not affect government benefit eligibility.

Who is Eligible for a STABLE Account?

Those individuals who meet the following 3 requirements are eligible to establish a STABLE account in Ohio:

  1. The individual developed his or her disability before the age of 26;
  2. The disability must have existed or is expected to exist for at least a year; and
  3. Must meet 1 of the following criteria:
    1. Be entitled to SSI or SSDI;
    2. Have a condition included in the SSA’s List of Compassionate Allowances Conditions; or
    3. Be able to self-certify, with written diagnosis from physician, that the individual is blind or has an impairment that results in “marked and severe functional limitations” (examples of qualifying conditions can be found in SSA’s disability Blue Book – Part A for adults; Part B for children).

As Ohio’s STABLE plan is a national plan, there is no requirement that the individual be a resident of Ohio.

How does a STABLE Account Work?

As mentioned above, the account works like a combination of an investment account and a savings/checking account.  It takes a minimum $50 contribution to open the account, but subsequent contributions can be as little as $1.

The maintenance cost for the account is $30/year for Ohio residents and $42/year for non-residents.  The money will be invested under 1 or more of the 5 available investment options, which allocations are made when setting up the account:

    1. Growth – aims to provide capital appreciation and some current income
    2. Moderate Growth – aims to provide capital appreciation and low / moderate level of current income
    3. Conservative – aims to provide current income and low / moderate capital appreciation
    4. Income – aims to provide current income and some capital appreciation
    5. BankSafe – aims to protect the capital investment (100% into FDIC insured account)

Because the account is an investment account, there is an asset-based fee of between 0.19% and 0.33% for Ohio residents, depending on the chosen investment options.  Fees for non-residents range from 0.45% to 0.59%. 

Anyone can contribute to an individual’s STABLE account, up to $15,000 per year.  Contributions to a STABLE account are eligible for a tax deduction up to $4,000 annually, with unlimited carry-forward or excess annual contributions.  If the individual is employed, he or she can contribute an additional $12,140.  The maximum lifetime limit is $468,000; however, a balance above $100,000 would affect the individual’s SSI entitlement. 

All requests for a withdrawal are accomplished through an online account.  Funds are given to the individual or his or her authorized legal representative though electronic transfer or by check.  The electronic option allows the individual to load the funds onto a STABLE debit card or into a personal bank account.  Companion STABLE cards can be issued to a parent or authorized legal representative.  There is no limit on the number of withdrawal requests, and there are no fees for withdrawing money.

As mentioned above, money in a STABLE account must only be used to pay for Qualified Disability Expenses. An expense is “qualified” if:

  • the expense is incurred at a time when the individual was eligible;
  • the expense relates to the disability of the eligible individual; and
  • the expense helps the individual maintain or improve his or her health, independence, or quality of life.

Important Considerations

Any earnings on a STABLE account are not taxed so long as they are spent on qualified expenses.  Because the IRS audits the spending on STABLE accounts, good record-keeping is very important.  Failure to demonstrate that STABLE monies were used for qualified expenses may result in having to pay regular income tax plus a 10% penalty, and the non-qualified expenses could be counted against the individual in assessing Medicaid or SSI eligibility.

Additionally, for SSI recipients, any money withdrawn for housing or rent should be spent immediately so as not to affect eligibility. 

Lastly, STABLE accounts are subject to the subrogation rights held by the Department of Medicaid.  This means that to the extent that the individual received Medicaid benefits, the state is entitled to reimbursement of those amounts from the STABLE account upon the individual’s death.

Because of the state’s rights against a STABLE account, when family members wish to contribute significant sums of money to a disabled individual, a tandem third party discretionary trust for the individual is often an appropriate planning tool, as the monies in the trust are not recoverable by the state and instead stay in the family.

If you have a disability or have a loved one with a disability, a STABLE account can be an excellent way to provide for needs without jeopardizing eligibility for government benefits. If you have questions about STABLE accounts and how they work by themselves or in combination with a trust, or if you would like more information, we invite you to contact our law office.

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