CalAble Accounts: What You Need to Know

What is a CalAble account? Why doesn’t it affect MediCal eligibility?  What is a Special Needs Trust in California? California Estate Planning Attorney explains how CalAble savings accounts and Special Needs Trusts can complement each other. If you have a Special Needs person in your life, you need this information. 

In December 2018, CalAble Savings Plans opened to the public. Individuals who became disabled below the age of twenty-six are now able to invest in a tax-free account, without losing their SSI or MediCal.

A CalAble account is a savings and investment account. They can be opened by a disabled or blind individual, or on behalf of the disabled or blind individual, as long the third party is Guardian, conservator, or Power-of-Attorney agent to the disabled person. In all cases, the blindness or disability must have occurred before age twenty-six.

How does a CalAble account work?

CalAble accounts do not count for a person’s eligibility for federal or California benefits unless the account balance exceeds $100,000. Once an account exceeds $100,000, SSI may be suspended. However, a CalAble account balance will never affect eligibility for MediCal.

All appreciation within a CalAble account is tax free. Distributions from CalAble accounts are tax free as long as they are used for Qualified Disability Expenses. A Qualified Disability Expense is an expense that relates to a disability and helps the account owner improve their health, independence or quality of life. If CalAble funds are used for Non-Qualified Expenses, the account owner may have to pay income taxes, plus a 10% federal tax and a 2.5% California state tax. These non-qualified funds you withdraw may be counted against you for determining eligibility for public benefits.

The maximum Annual Contribution Limit is $15,000 (the limit is tied to the annual federal gift tax limit). Employed account owners can contribute up to an additional $12,140 to their respective account.

Anyone can contribute money to a CalAble account, including a Trust.

How do CalAble accounts relate to a Special Needs Trust?

In general, CalAble accounts and Special Needs Trusts complement one another. CalAble accounts allow account owners direct access to their own savings funds but are limited to the $100,000 amount.

Do you own a home, IRA, or accounts larger than $100,000? If so, these assets should be left to a Special Needs Trust, as opposed to a Beneficiary outright with a CalAble Account. Unlike human beneficiaries, Special Needs Trusts can hold virtually unlimited assets, yet the human Beneficiary will never risk losing their public assistance.

The growth within a Special Needs Trust, unlike the CalAble account, is subject to taxation. As noted earlier, growth within a CalAble account is tax free. Funds from the Special Needs Trust can be withdrawn and placed in a CalAble account in order to receive this tax-free treatment.

What does this mean for my Special Needs loved ones?

CalAble accounts will enable millions of people to reach new levels of financial security. Coupled with a comprehensive Estate Plan, disabled people and Special Needs Beneficiaries can now live a life where they are less focused on their finances and can pursue their passions. Disabled loved ones no longer must sacrifice basic needs just to ensure government benefits.

If you would like an Estate Plan tailored to your Special Needs Beneficiary’s needs, please contact Cunningham Legal and schedule a one-on-one meeting with one of our licensed attorneys.

What Do We Do as California Estate Planning Attorney Specialists?

The lawyers and staff at CunninghamLegal help people plan for some of the most difficult times in their lives; then we guide them when those times come.

Make an appointment to meet with CunninghamLegal for California Estate Planning and Trust Administration. We have offices throughout California, and we offer in-person, phone, and Zoom appointments. Just call (866) 988-3956 or book an appointment online.

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We look forward to working with you!

Best, Jim

James Cunningham Jr., Esq.

Founder, CunninghamLegal

At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.