ABLE Act Update: Arizona Residents Could Have Access Next Month

DECEMBER 21, 2015 VOLUME 22 NUMBER 47

We’ve written before about the Achieving a Better Life Experience (ABLE) Act and the possibility that Arizona might get its own version adopted in the next legislative session. Now comes a pleasant surprise from Washington: Arizonans with disabilities won’t have to wait for our legislature to act.

Last week Congress passed a new budget, which the President promptly signed. One tidbit, buried deep in the new law, will eliminate the limitation that ABLE Act account holders may only sign up for accounts in their home state.

To be clear, all of the other limitations on ABLE Act accounts remain. Deposits into the accounts are still limited to $14,000 per year — a cumulative total, from all sources (including any savings contributed by the person with disabilities herself). There can still only be one account. The remaining account balance still will need to be paid over to state Medicaid program (AHCCCS, in Arizona) upon the death of the account holder. If the total account grows above $100,000, there will still be a suspension of Supplemental Security Income (SSI) benefits. But at least Arizona residents won’t have to wait for the in-state legislative process.

The new federal law will be effective January 1, 2016. Theoretically, any Arizonan with a disability could set up an ABLE Act account in another state the next business day. But that would require some state to be so far ahead of Arizona that they are already offering accounts. Where can you put your ABLE Act money starting January 2?

Keep it in your pocket. (OK — we’re speaking metaphorically here. Leave it where it is.) No state has a fully-functioning ABLE Account set up yet, so far as we know (and we’ve been paying attention). Several states — Virginia, West Virginia, Utah and Massachusetts were among the earliest — have adopted enabling legislation. In fact, almost two-thirds of the states have already passed ABLE bills. Notable among the holdouts: Arizona (along with Georgia, Idaho, Indiana, Mississippi, Oklahoma and Wyoming) has not even introduced a bill in the year since the new accounts were authorized.

But that doesn’t necessarily mean Arizona is not interested. There should be an ABLE Act bill in Arizona’s legislature as soon as the new session opens next month. There is considerable interest in adopting something, and it’s likely that there will be at least a study commission in place by mid-year. Arizona ABLE Act accounts are likely to be available in early-to-mid 2017.

Should you just wait? Maybe not. If a good account structure is set up in, say, Massachusetts (or Virginia, or Florida) in the next six months, it might be time to open an account. What’s the rush? The new account might give you a chance to get someone with a small bank balance eligible for SSI. It might allow an easy repository for excess earnings for an SSI recipient with a part-time job. It might be a good place for family members to make small contributions to encourage independence. In other words, it might be a good idea, and you might not want to wait.

There are still unanswered questions about ABLE Act accounts generally: will payments for rent or other housing expenses reduce the account-holder’s SSI payments? Will someone have to review proposed distributions before they are permitted? How will accounts work for minor children and adults who are incapacitated? What authority will parents or other family members have? Those questions were going to wait (in Arizona) for adoption of an Arizona-specific plan, and now the urgency has just stepped up. But new answers have not yet materialized.

On top of that, the change adds some other, newer, questions: will it be possible to move an account from one state to another, less-expensive or easier-to-manage, state? Will Arizona’s Medicaid program understand how to handle accounts in up to 50 other jurisdictions? Will there be competition among the states (or at least among the early-adopter states), like there is in 529 Plans? Will one or two big providers come to dominate the industry? How will states handle the payback requirement when the accounts may be in any state’s program? Our answer: we’ll see.

Another question, specific to Arizona: will the new ability to open out-of-state ABLE Act accounts take the wind out of Arizona’s sails, as it were? In other words, will Arizona’s legislature decide not to pursue the option of establishing a program, especially in the face of uncertainty about administrative costs and oversight?

Many of the underlying ABLE Act issues remain unchanged. The requirement that all assets in an ABLE Act account continue to make the accounts unattractive for any large family donations (hint: use a third-party special needs trust). Annual limitations on contributions make them useful for a much narrower field than they might be. And, of course, the requirement that the ABLE Act account holder must have been disabled before age 26 sharply limits the number of people with disabilities who might qualify. Some of those problems may actually be addressed in future congressional sessions.

This week’s expansion should speed up the ABLE Act process by quite a bit. We’re looking forward to seeing how it works out.