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New ABLE POMS Issued

Kristi Khughes May 14, 2018

In the October 2017 edition of the Disability Law News, we outlined the provisions of ABLE (Achieving a Better Life Experience) accounts, now available in New York. https://empirejustice.org/wp-content/uploads/2018/01/Disability-Law-News-October-2017.pdf.

 

ABLE accounts, which are active in almost forty states and in “program development phase” in others, allow individuals living with disabilities to open tax-advantaged savings accounts. Prior to the ABLE Act passage in 2014, SSI-eligible individuals generally utilized special needs trusts (SNTs) to avoid excess resources rules.  By following the rules and regulations set forth by the IRS and SSA, participants will be able to save up to $100,000 in excludable resources, far greater than the current SSI limits of $2,000-$3,000.

 

The purpose of the ABLE Act was to make this process of retaining SSI eligibility “user-friendly.” A family member or the disabled individual should be able to open an account without the assistance of an attorney, and they will not need court approval to do so.  SSA has been receiving reports of new accounts and balances from the active state programs since October 2017.  SSA relies on these reports or a DB’s (Disability Beneficiary) self-report to discover the existence of an ABLE account.

 

The Social Security Administration (SSA) published new POMS in March pertaining to ABLE accounts. According POMS SI 01130.740, an ABLE account should not affect SSI eligibility if a DB uses distributions toward housing expenses, which do not include food per the In-Kind Support and Maintenance (ISM) definition, or qualified disability expenses (QDEs), which are defined as personal property items related to the participant’s disability.

 

The ABLE POMS were written, in part, to clarify instructions about excluded contributions and simplify references to QDEs. The POMS list the general rules one must follow to maintain SSI eligibility with an ABLE account. DBs are allowed only one ABLE account with limited exceptions during periods of transfers or rollovers. Contributions to the account will not be counted as income at the time they are contributed. If the money is income contributed by the DB (earned or unearned), it should already have been counted by SSA when the DB received it and not counted again when the DB makes a contribution. Likewise, money contributed by others on the DB’s behalf will not be counted as income but will be viewed as a completed gift. All contributions, regardless of the source, will be counted toward the annual contribution limit, which for 2018 is $15,000.

 

Many of the rules in the ABLE POMS will not apply for several years. The excess resource rule, for example, will only apply once a beneficiary (DB) has an account balance exceeding $100,000. So while the POMS instruct SSA analysts on how to handle ABLE accounts, much is not relevant at this time. What are relevant are the system enhancements for the analysts, i.e., where they record the accounts and balance information. Of note, interest and dividends earned by an ABLE account will not be taxed but will be excludable from the DB’s income and resources when the account is below $100,001.

 

But current distributions from an ABLE account may affect a DB’s SSI eligibility. The money distributed from the ABLE account is not income but will be considered a “converted resource.” The ABLE Act regulations allow distributions for QDEs and housing expenses to be excludable resources as long as several rules are followed. If a DB requests and receives a distribution for a QDE, it will be excluded from resources as long as the money can be identified by SSA and the DB intends to use it for that purpose. If the DB’s intent changes or the money is spent on a housing expense or a non-qualified expense, it will become a countable resource. A QDE will be an excluded resource forever as long as it remains the DB’s personal property required for a medical condition. The POMS provide a helpful example to illustrate the retained distribution rules. If a DB receives a $25,000 distribution for a medical device (QDE), uses part of it to pay for the deposit, and spends part of it at the casino, the portion used at the casino will be a countable resource in the month it is spent; the remainder, however, will still be considered an excluded resource. This rule also applies if the DB uses part of the QDE distribution for housing expenses, like rent or heating oil.

 

The housing expense rules for distributions will    require precise planning on the DB’s part. If a DB retains a qualified distribution for a housing expense into the month following the month it was received,  it will be counted as a resource in the second month. One of the more esoteric rules for qualified distributions is the “changed intent” rule. If a DB’s intent to use an excluded distribution changes but the funds are not spent in the same month the intent changed, the funds will be counted as a resource in the following month. A DB may re-designate the funds for use on another QDE or return the funds to the ABLE account before the first day of the following month to avoid having the money counted as a resource.

 

The new POMS also discuss “indefinite benefit suspension,” which is unique to the ABLE Act regulations. When a DB is over resource as a result of funds in the ABLE account, a DB will be placed in indefinite benefit suspension. The DB will no longer be eligible to receive a monthly SSI benefit until the resource issue is resolved, but will continue to be eligible for Medicaid. An ABLE account holder will not be terminated after 12 continuous months of suspension under the regular SSI rules, as long as otherwise eligible for SSI. Once the resource is reduced below the limit, SSI will be reinstated. Most of the questions one might have about ABLE accounts are answered in the new POMS but, as SSA points out, we should not need many of the answers for several years.

 

Thanks to Jennifer Karr of the Empire Justice Center for keeping us updated on ABLE accounts.