What is the ABLE Act?

Most people believe Congress is perpetually in gridlock. There are times when Congress takes action, but it usually only happens after a November election and before a new Congress has been sworn in. December of 2014 was not any different.

One of the more important matters Congress addressed last December was on legislation entitled the ABLE Act. The ABLE Act stands for the "Achieving a Better Life Experience" and was passed by Congress and became law when President Obama signed the Able Act on December 22, 2014. The ABLE Act focuses on the needs of disabled Americans and allows them to open tax-free savings accounts to pay for certain life expenses.

Prior to the passage of the ABLE Act, it was extremely hard for someone with disabilities and their family members to self-fund care and still remain eligible for federal benefits if savings exceed certain limits. To qualify for many services, a person with disability can only have saved $2,000 in assets, earn only $700 a month, and still remain eligible for Medicaid and Social Security Disability Insurance (SSDI).

The ABLE Act allows people with disabilities and their families to set up a special savings account for disability-related expenses. Earnings on an ABLE account would not be taxed, and account funds would generally not be considered for eligibility the supplemental security income (SSI) program, Medicaid, and other federal means-tested benefits. The best analogy to the ABLE act is the Federal code that established 529 Accounts, allowing a person to save for college expenses in a tax-deferred vehicle.ⁱ

However there are some limitations. An individual would only be eligible if that person becomes disabled before age 26 and (1) receives Social Security Disability Insurance (SSDI) or SSI; or (2) files a disability certification under forthcoming rules that the IRS will draft. If an ABLE act savings account's value exceeded $100,000 the disabled individual would no longer receive SSIⁱⁱ but would still be eligible for Medicaid. Disability expenses would be restricted to expenses made for the benefit of a disabled individual for education, housing, transportation, healthcare and the like. You can read more about the expenses here.

Like the 529 accounts, the tax savings of the ABLE act account would be a creature of state tax law. Thus, each state will likely treat ABLE act accounts differently. While the tax benefits are not the underlying reason for a person to create an ABLE act account, families and those with disabilities can benefit nonetheless. On April 14th, Virginia became the first state to pass and implement the ABLE Act since the federal legislation passed.

An ABLE act account will not replace special needs trusts, but it can help those people that cannot afford the legal and administrative costs to create a special needs trust and will an additional option to think about for those people with disabled loved ones.

Basics of Estate Planning: Why Should I Have an Estate Plan?

Most of the topics I write about have to deal with a specific estate planning issue - like how a power of attorney works, what are the terms of a will, should your estate plan include only a will or also include a trust. But, with my newsletter entering its sixth year, I thought it would be a good opportunity to take a step back and explain some of the overarching reasons to have an estate plan.

Accidents - No one knows when they will pass away. Most hope their time on Earth will continue for many years from now. But, accidents happen. I infrequently watch the evening news, but, when I do, it is a rare night that the newscaster is not providing information on a deadly car accident, house fire or some other deadly accident. It never hurts to be prepared.

Prevent discord - Many people have the mistaken belief that all of their loved ones will "get along" after their passing. Just as likely, though a disagreement can occur over a sudden unexpected demonstration of greed. Unfortunately, many of those people are mistaken. Loved ones will fight over anything. Many times disagreements arise due to events decades before your passing. Many people are surprised that much of the tension is over a decedent's tangible personal property, rather than money. But, we have seen numerous people fight over money, too. See here, here, here, and here as examples.

Avoid Intestacy - If you die without an estate plan, your estate will be distributed under the intestate provisions of the jurisdiction of the state in which you live. Intestate distribution is based on family relationships identified by law and might not be your final wishes. Having an estate plan allows you to distribute your assets according to your desire, not government dictate. Intestate estate administrations tend to be more costly then testate ones because they usually take longer to administer. I believe most people want as much of their assets to go quickly to their loved ones, rather than to professionals like attorneys, accountants and the like.

Leave a Legacy - You would be surprised by the number of people that say: "I'm leaving it all to X. Person X knows what charities to give my money to." If only it was that easy. Person X will be under no legal obligation to make sure the charities you want will receive that distribution. By including a charity or non-profit in your estate plan, you are ensuring that your intentions are followed and the asset goes directly thereto.

Minor children - Who do you want to raise your children if you die? Without a plan, a court will make that decision based on the best interest of the child. That might be the same person by whom you would like to see them raised but it might not. With a plan, you are able to nominate the guardian of your choice, giving the court the ability to incorporate your decision into appointing a guardian for your minor children.

Take inventory of your assets - Taking stock of your assets when drafting an estate plan can aid in organizing the rest of your life. Estate planning encompasses almost every aspect of your life including retirement planning, real property, designation of guardians, and to dealing with your potential incapacity. Putting an estate plan in place, when you are not confronted by an emergency situation, gives you time to review your entire estate. You can then designate the correct people for any situation, including both incapacity and death. Without a plan, the wrong person could act for you and more than likely make the wrong decision. And, even if the right person steps forward to act on your behalf, they might need to go to court to get the authority to act and/or they might have to fight someone else. Settling the estate will take time, which usually also incurs more expenses.

Estate of the Month: Tom Benson

Most readers know that my favorite sport to follow is football. This has led me to write numerous stories highlighting the errors NFL players make in their estate planning. But, even NFL owners have estate plans from which you can learn. In this case, we look at the estate planning and succession planning by Tom Benson, the owner of the New Orleans Saints.

On January 21st, Benson announced a significant change in his plans for the control upon his passing of the NFL and NBA teams he owns. Prior to this announcement, Renee LeBlanc, and her children, Rita Benson LeBlanc and Ryan LeBlanc were believed to overriding control of the New Orleans Saints and Pelicans. Benson based the alterations on a feeling that his heirs "never rose to the task" in managing the team when given various aspects of control. Instead of the LeBlancs, Benson stated that ownership and control of the teams will transfer to his third wife, Gayle Benson. Not surprisingly, Gayle is not related to the LeBlancs.

Needless to say, the LeBlancs were not happy. One day after the announcement, the LeBlanc family filed a petition in a Louisiana court claiming the eighty-seven year old family patriarch Benson is incompetent and, thus, could not manage his affairs nor alter his succession planning. The family alleges that the change of ownership was being directed by Benson's "manipulative" third wife. They also requested that Benson undergo psychological and cognitive tests to determine his competence.ⁱⁱⁱ

The quick filing of the petition in response to Benson's announcement by the LeBlancs indicates that strong discord between the two groups had been building for some time. Indeed, the LeBlancs have likely been on notice as far back as 2012. Benson reported he was extremely unsatisfied with Rita Benson LeBlanc's management of the Pelicans and placed her on administrative leave. The move was reported to be a planned wake-up call for Rita, because of her "lack of focus," "abrasive management style," and "sense of entitlement." Renee also claimed that her relationship with her father deteriorated after he married Gayle in 2004.

Upon the filing of the lawsuit by his daughter and grandchildren, Benson vowed to fight the lawsuit and claimed the LeBlanc's allegations are completely false. But, like many lawsuits, unrelated third parties have been dragged into the family squabble. Roger Goodell, the NFL Commissioner, likely in an attempt to protect the league's image, gave the not unexpected vote of confidence to Benson. But, other family members have also spoken out in support of Benson. Dawn Jones, the daughter of Benson's only son, Robert, who died in 1985 released a statement that she is heartbroken that "other family members have chosen to publicly harass and humiliate the patriarch of our family -- the very person who is responsible for giving them everything they have."

His estate does not just include the Saints and the Pelicans but, like many billionaires, he has many other assets, which also complicates the matter. At the same time the LeBlancs were filing suit in Louisiana, they filed another lawsuit in Texas over Benson's role as Trustee of a trust established upon the death of Benson's first wife in 1980. Based on that lawsuit, a Texas probate court judge made the rare move of removing Benson and placed that trust's assets in receivership under the belief that Benson was unable to manage his affairs.^iv Benson's lawyers were able to remove this matter from the local Texas probate court to federal court though the LeBlanc's are fighting that removal. The reason behind this fight is that each side thinks one court provides a better avenue for the success of the merits of their claims.

What can the average person thinking about estate planning learn from this matter? I guess if you are a cynic, you would say "don't public announce you are cutting someone off from their inheritance." Though, I guess that might be true, I believe communication is the key to any successful estate plan. While Benson is alive, he can provide real evidence of his competency, which he cannot do after his passing.

Dawn Jones statement hits at the heart of the matter. Children, unlike a surviving spouse, are not entitled to any portion of a person's estate. In other words, you can disinherit your children if you so choose. I am sure many Redskins fans do not want to be reminded that Jack Kent Cooke essentially disinherited his sons by stating the Redskins would be sold to the highest bidder and the proceeds would fund his charitable foundation. This eventually led to Daniel Snyder owning the team, and Redskin fans have being living in angst ever since.

There is a strong believe that an eighty-seven year old is unable to manage his or her affairs. This argument can be made in any family over the affairs of older loved ones. Does it need to be a $1.8 billion professional sports empire or it could be the average bank account? The LeBlancs have the greater burden to meet in order to return Benson's plan back to the pre-January 20th regime because there is a presumption a person is competent. In fact, a certain degree of forgetfulness and decline in functioning is expected and tolerated, without considering someone to be incompetent to make decisions. However, the LeBlanc's can prove that the gray line of competence is crossed, such so that decisions are being made in a manner different than the person would have made without the decline, the LeBlanc's will win.

Unfortunately, resolving this matter could take a long time. A hearing has been set for June 1st, where the judge in Louisiana will review the psychological report determining Benson's competency. Once the judge rules on Benson's competency, I would expect the losing side to appeal. I will be sure to keep you informed.

ⁱIn fact, the ABLE act was codified in the same IRC section as 529 accounts and will be known as 529A accounts.

ⁱⁱThe disabled individual of the account would not receive a check but would retain eligibility for the SSI program.

ⁱⁱⁱNot surprising a psychological report will be provided to the court composed of the findings by three psychiatrists - one hired at the recommendation of each side in the litigation and a third one who was jointly selected by the two sides.

^ivBenson was present at the hearing in the Texas Probate Court but opted not to testify.