ABLE Act Proposed IRS Regulations: Highlights for Potential Beneficiaries and Families

On Friday, June 19, 2015, the Internal Revenue Service (IRS) released the highly anticipated Notice of Proposed Rule Making (NPRM) for the Achieving a Better Life Experience (ABLE) Act. The NPRM stipulates the proposed regulations by which state ABLE programs will largely be developed and administered.  These proposed regulations are open for public comment until September 19th.  In addition, a public hearing will be held on the morning of October 14th in Washington, DC to allow relevant stakeholders and the public at large to further express their comments regarding the details in the NPRM.

In an effort to inform the disability community and other relevant stakeholders about the details of the proposed regulations, the ABLE National Resource Center has developed the following preliminary highlights:

Background

The Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act) was signed into law on December 19th, 2014. This paramount new law permits states to create ABLE programs which would allow qualified individuals with disabilities the opportunity to save money in a tax-advantaged account without jeopardizing their eligibility for most federally funded means-tested programs (including Medicaid and to a certain extent Social Security benefits). The funds in this account are to be used for the benefit of the beneficiary who is the qualified individual with a disability and also the account owner. Disbursements from an ABLE account are to be used for qualified disability expenses, and contribution to the account is subject to certain annual and aggregate limits.

Establishing an ABLE Program[1]

It is important to understand that the ABLE Act allows states to establish an ABLE program, but it does not obligate a state to do so. The proposed regulations state that “a program is established by a State, or its agency or instrumentality if the program is initiated by State statute or regulation, or by an act of a State official or agency with the authority to act on behalf of the State”. While it appears that the proposed language does allow the establishment of a state ABLE program outside the vehicle of enacted state legislation, this is expected to be highly uncommon. States will likely have to enact state ABLE legislation or contract with a state that has agreed to extend their program to qualified residents of the state absent of a program before accounts can be set up.

Signature Authority[2]

The proposed regulations reaffirm that the designated beneficiary, who is the qualified individual with a disability, is also the account owner. The regulations go on to stipulate that If the designated beneficiary is not able to exercise signature authority over his or her ABLE account or chooses to establish an ABLE account but not exercise signature authority, the designated beneficiary’s agent under a power of attorney or, if none, a parent or legal guardian of the designated beneficiary can be allowed signature authority over the account.

Criteria for Establishing Eligibility

If the potential beneficiary is entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act and the blindness or disability occurred before the individuals 26th birthday then the individual would be eligible to open an ABLE account. The proposed regulations assert that each state ABLE program is allowed to verify this however they see fit[3].

If the potential beneficiary is attempting to receive eligibility through establishing a “disability certification” then the potential beneficiary must present to the state ABLE program documentation stipulating that the individual meets the criteria in the federal statute, along with the individual’s diagnosis related to the individual’s relevant impairment or impairments, signed by a licensed physician (DO or DM). At the point in which this documentation is given to the state ABLE program, that individual is eligible to open an ABLE account[4].

For eligibility purposes, the phrase “marked and severe functional limitation” will be the same standard as the disability standard related to the Social Security Act for children claiming benefits under the Supplemental Security Income for the Aged, Blind, and Disabled (SSI) program based on disability, but without regard to the age of the individual[5].

Recertification and Change in Eligibility Status

The proposed regulations state that a qualified ABLE program generally must require annual recertifications confirming that the designated beneficiary continues to satisfy the definition of an eligible individual. However, the proposed regulations also provide the states with flexibility depending on a qualified beneficiary’s particular circumstance (in particular the severity and nature of their disability)[6].

The proposed rules also allow for an individual to maintain their ABLE account even in a circumstance wherein their disability or condition may be temporarily alleviated to a point where they would not be considered a qualified beneficiary. There are limits to the use of the account while the individual is considered to not be a qualified beneficiary, including a moratorium on contributions and qualified disbursements[7].

Change in Residency[8]

The proposed regulations provide that a qualified ABLE program may permit a designated beneficiary to continue to maintain his or her ABLE account that was created in that State, even after the designated beneficiary is no longer a resident of that State.

Rollover from 529 to 529A[9]

The proposed regulations confirm that funds from a 529 college saving account will not be allowed to be rolled over to a 529A account (ABLE account) without applicable penalties and tax implications.

Qualified Disability Expenses[10]

The proposed regulations clearly call for a broad interpretation of what may be considered a qualified disability. The proposed regulations state that qualified disability expenses are expenses incurred that relate to the blindness or disability of the designated beneficiary of the ABLE account and are for the benefit of that designated beneficiary in maintaining or improving his or her health, independence or quality of life.

The proposed regulations reiterate the qualified disability expense categories as stated in the statute, however, it is noted that the documented categories are not exhaustive and should additionally include basic living expenses. Furthermore, the proposed regulations confirm that qualified disability expenses should not be limited to items for which there is a medical necessity or limited to items which solely benefit the eligible individual.