Illinois treasurer to launch tax-free savings accounts for people with disabilities

Jan. 30--SPRINGFIELD -- Kimberly Dorencz-Cuervo walks a financial tightrope when it comes to taking care of her 3-year-old daughter Dayna, who has a severe form of spina bifida.

The Morgan Park mom wants to ensure Dayna is taken care of day to day, and the family's Medicaid benefits help cover that. But Dorencz-Cuervo also wants to save for a new, more accessible home so her daughter has the freedom to move around as she pleases.

Some fine print in benefit programs like Medicaid and Supplemental Security Income means the family can only squirrel away so much money. The programs limit recipients' personal assets to $2,000, and benefits are suspended if families exceed the cap.

"It's really hard for us to put any money aside right now for that fear," Dorencz-Cuervo said.

On Monday, state Treasurer Michael Frerichs will announce a new program that aims to help families like Dorencz-Cuervo's save for the future. Illinois is forming a coalition with 13 other states to allow people with a disability or blindness and their families to open tax-deferred investment accounts to save money.

Dubbed Achieving a Better Life Experience, the accounts are similar to the 529 college savings plan. That meansearningsare not taxed whenspent onapproved disability expenses, which include education, housing and medical costs.

"I think especially when we've gone nearly two years without any budget certainty and social service providers are closing their doors, it's important we use our office to help give families tools they need to invest in themselves to give their kids a brighter future," Frerichs said.

The accounts are designed to give people the flexibility to save money without jeopardizing state and federal benefits that are limited by income. According to Frerichs' office, an ABLE account can grow to up to $100,000 before social security benefits are suspended. The amount of money in the funds will have no impact on Medicaid eligibility, according to the treasurer.

Per federal law, total contributions toward the account can't surpass $14,000 annually. And under Illinois law, account deposits are limited to $350,000. Beneficiaries and third parties can put money into the account.

"It's a fabulous way to be able to save for things that Dayna will need without hurting our economic status," Dorencz-Cuervo said.

To qualify for an ABLE account, a beneficiary must have developed his or her disability before age 26. From there, anyone who is eligible for Supplemental Security Income or Social Security Disability benefits can open one. People with disabilities who don't collect benefits because they're working can still apply for ABLE, but a doctor must certify their eligibility for the program.

Benjamin Rubin, a Chicago-area attorney who specializes in estate planning for children and adults with special needs, said the specialized accounts have two major advantages: They allow higher-functioning individuals to be in control of their money, and people don't need to go through the process of hiring attorneys like they do for a special needs trust.

"The cost of setting up an ABLE account is virtually nothing -- up front there's virtually no cost," Rubin said. "It's based on fees."

In Illinois, the minimum amount required to open an account is $25. The treasurer's office said the typical account fee will be 34 cents to 38 cents for every $100 invested. If more states sign up for the program, Frerichs said the fees could go lower.

Skokie native James Fuller is one Illinois resident who stands to benefit from such an account. The 22-year-old was born with spina bifida and uses leg braces to help him walk. He currently works full time at Advocate Medical Group's call center and doesn't receive benefits, but said an ABLE account could serve as a safety net for unforeseen expenses.

"Being a person with a disability, sometimes certain health problems are semi-inevitable," Fuller said.

Fuller said he wants to do more research before committing to an account, but he said he thinks it's a concept that will benefit the disability community.

"The reality is health care is very expensive, and without great insurance that would cover a lot of that, it's definitely important to be able to have something to fall back on other than just personal life savings that you wouldn't want to wipe out as a result of that," he said.

Experts say the savings program isn't a cure-all, pointing to some weaknesses in it.

Samantha Crane, legal director and director of public policy at the Washington, D.C.-based Autistic Self Advocacy Network, criticized the federal age cutoff, saying the program should apply to those beyond 26 years old.

"Unfortunately, the age cutoff is not based on who really needs this or who can really benefit from it," Crane said.

Another controversial aspect of the ABLE program is a provision that allows states to, upon the death of a beneficiary, act as a creditor and recoup the Medicaid dollars they paid out while the account was open. The specific amount, according to Rubin, is either the remaining balance of the ABLE account or the cost of the Medicaid services -- whichever is less.

With that in mind, Rubin encourages clients to limit the money they deposit to social security funds, small inheritances or small settlements from lawsuits. He suggested relatives not contribute, instead suggesting they donate to a third-party special needs trust.

"When it's third parties -- grandma, aunts or uncles, parents putting money in there -- it doesn't really feel fair that they should have a payback on it, but that is how it was passed," Rubin said.

The state can opt out of the payback provision, but so far only Pennsylvania has chosen to do that. Frerichs spokesman Greg Rivara said the treasurer wants to pursue that option for Illinois, but does not plan to bring it to the General Assembly in this session.

Eligible Illinois residents can begin applying for ABLE accounts Monday at savewithable.com.

Once the family's account is up and running, Dorencz-Cuervo said her family will begin to set money aside for a new home, along with future expenses for Dayna's education.

"Eventually, if everything goes as planned, Dayna will be on her own one day, and she's going to need money, too," Dorencz-Cuervo said.

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