Brittany L. Moore, Esquire
In 2014, the Achieving a Better Life Experience Act (ABLE Act) opened a door at the federal level to give each state the opportunity to set up programs for people with disabilities and their families to establish tax-advantaged savings accounts without impacting the disabled individual’s public benefits.
On April 18, 2016, Governor Wolf signed the Pennsylvania Achieving a Better Life Experience Act (PA ABLE Act). The PA ABLE Act was passed to provide more financial options and security to individuals whom became disabled prior to age 26. This is to be accomplished through savings accounts established for benefit of the disabled individual in which funds may accumulate tax-free to pay for qualified disability expenses without jeopardizing their eligibility for need-based programs such as Supplemental Security Income (SSI) and Medicaid.
If an individual becomes disabled prior to the age of 26 and is already receiving SSI and/or Social Security Disability Insurance (SSDI), the individual is automatically eligible to establish an ABLE account. However, if the individual is not currently receiving these benefits, they must first obtain a physician certification to set up an account.
These accounts have many tax advantages. They are able to grow tax-free and are exempt from Pennsylvania inheritance tax. Withdrawals are exempt from federal and state income tax when used for qualified disability expenses such as community living expenses such as education, housing, transportation, employment training and support, assistive technology, housing, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and more.
Typically, the beneficiary of the account is named as the owner, but anyone may contribute. The combined yearly contributions may not exceed $14,000, which will be adjusted annually for inflation. The total account contributions over the life of the beneficiary cannot exceed the limit for Pennsylvania education-related 529 plans. In 2016, this amount was $511,758.
ABLE accounts do not need to be established by the beneficiary. If parent, guardian, or power of attorney opens an ABLE account on behalf of a minor or adult lacking capacity, they are held as the fiduciary and will remain in that role until they decide to relinquish control of the account.
Likewise, ABLE accounts need not be managed by the beneficiary. In Pennsylvania, any person designated in writing by the parent or guardian, a trustee of a trust for which the eligible individual is a beneficiary, if the eligible individual is receiving SSI or SSDI, the representative payee, or anyone else allowed by federal law, which includes parents, guardians, and powers of attorney can have “signatory authority.”
Prior to the ABLE Act, individuals with more than $2,000 were deemed ineligible for SSI and other means-tested programs. It is now possible for disabled individuals to hold assets that exceed this individual resource limit in an ABLE account and still qualify for public benefits as long as the account total does not hold more than $100,000. If the ABLE account accumulates more than $100,000, the disabled individual’s SSI benefits may be suspended. After the account balance is drawn back to $100,000 or less, their benefits will be reinstated. On the other hand, Medicaid is not impacted by this fluctuation.
ABLE accounts are now available in Pennsylvania. To open a Pennsylvania ABLE account, it is expected that you will go through the Pennsylvania Treasury Department and enroll online or through mail. You visit http://www.paable.gov/index.html to read details of the ABLE program in Pennsylvania, or to enroll in an ABLE account.
If you are a Pennsylvania resident looking to open an ABLE account, it is permissible to do so in another state. However, other state plan contributions are not state-tax deductible.
If you have an existing power of attorney, you may already be well acquainted with the document. However, you may not be aware of recent changes to Pennsylvania’s law governing financial powers of attorney.
A power of attorney (“POA”) is a foundational estate planning document that allows another individual to act and make decisions on your behalf. Such authority is especially important if you ever lose mental capacity or are unable to act. In the written POA, the individual executing the document (the “principal”) appoints another individual (the “agent”) to make financial or health care decisions for the principal. Durable powers of attorney are not affected by the subsequent incapacity of the principal.
Recently, the law in Pennsylvania changed as it relates to powers of attorney that deal with financial directives. Act 95 was signed into law in July 2014 by Governor Tom Corbett. Parts of the law became effective immediately and the remaining portions were effective as of January 1, 2015.
One of the driving forces behind the change was a Pennsylvania Supreme Court case. The Justices reviewed whether statutory immunity extended to third-parties, such as banks and financial institutions, who relied upon a POA that appeared valid on its face, but in fact was not legally valid. Such a scenario exists if a third-party is presented with a POA that has all of the execution requirements and formalities, such as the principal’s signature in front of a notary public along with the principal’s notice and agent’s acknowledgment; however, the principal was actually incapacitated when he or she signed the POA. In the case before the Pennsylvania Supreme Court, the court decided that third-parties are only entitled to immunity when they act upon legally valid POAs and not those that only appear valid on their face.
How were third-parties to determine whether the principal was competent when he or she executed the POA? Act 95 sought to address this concern and also bring Pennsylvania’s POA law more in line with the Uniform Power of Attorney Act, which is a model that all states are encouraged to adopt.
Here is a list of key changes from Act 95:
- New Requirements for Executing a POA: The principal must execute the POA before a notary public and 2 independent witnesses;
- New Formalities Required: The first page of the POA must include a statutory “notice” in capital letters signed by the principal. A “notice” was already required, but now the language has been updated to include more information regarding the agent’s ability to act and to make it consistent with the other changes of the law. Similarly, the agent must sign an “acknowledgment” specifying the agent’s duties, which were also updated for consistency;
- Agent’s Duties Specified: Act 95 specifies three mandatory duties for the agent acting under a POA: acting in good faith; acting only within the scope of authority granted in the POA; and acting in accordance with the principal’s reasonable expectations (if actually known) or in the principal’s best interests. While the statute includes additional duties for an agent (regarding record keeping, comingling funds, etc.), those duties are defaults, and the POA can contain customized language modifying the agent’s responsibilities in those areas;
- Third-Parties’ Ability to Request Information: A third-party who is presented with a POA may now request (i) an agent’s certification regarding factual matters concerning the principal, agent, or POA; (ii) an English translation if the POA is in a language other than English; and (iii) a legal opinion confirming whether the agent is acting within the scope of authority granted in the POA; and
- Immunity and Acceptance of a POA: A third-party may in good faith accept a POA if the third party is without actual knowledge of the POA being void or deficient. Absent a permissible reason for a third-party to refuse a POA, the third-party must either accept the POA or request one of the items outlined above under #4 within 7 days after being presented with the POA. If the third-party requests an item under #4 above, then within 5 days after receiving the requested information, the third-party must accept the POA unless there is a substantial basis for making further request. A person who refuses to accept the POA is subject to civil liability or a court order mandating acceptance.
What is the take-away from all of this? If you have a current financial POA, you should consider making an appointment to consult with an attorney to see whether your POA should be updated due to the new law. Call Steinbacher, Goodall & Yurchak at 1(800) 351-8334 today to schedule your FREE consultation to review your Power of Attorney, and to discuss your Estate and Long-Term Care Planning goals.
*Certified as an Elder Law Attorney by the National Elder Law Foundation
What Are You Waiting For?
Let's say you have a child with "special needs," or another family member. If your estate plan doesn’t have a special needs trust, why not? Here are a few of the excuses I’ve heard, and some thoughts to consider:
I don't have enough money to justify a special needs trust. Really? You don't have $2,000? Because that's all you have to leave to your child outside a special needs trust to jeopardize their SSI and Medicaid eligibility.
I can't afford to pay for the special needs trust. It can be expensive to get good legal help. But the cost of preparing a special needs trust for your child is likely to be much less than the cost of care for a couple of months, which is what will happen if you die without a special needs trust, since it will take that long to maneuver an alternative plan in place. Even if there is no loss of benefits, the cost of fixing the problem after your death will be several times that of getting a good plan in place now, and the result will not be as good.
On January 23, 2015, in an attempt to “maintain the integrity of the program,” the VA proposed sweeping changes to its regulations regarding net worth and asset transfers. While some of the proposed changes may be favorable to a claimant by providing some clarity and consistency, many of them may significantly impact a veteran’s eligibility for benefits and the timeline in which they will be received.
The Good: Establishing a Bright Line Net Worth Limit
Currently, the VA does not have a clearly established net worth limit. While the VA takes into account such factors as liquidity of assets, number of dependents, and life expectancy of the claimant, there are no definitive criteria for determining whether a claimant’s resources are sufficient to meet their basic needs without the pension. However, it has been our experience that only those applicants with a net worth below $80,000 (the lower, the better!) are seriously considered.