Special Needs Trust vs. ABLE Account: Which One Works Best?
Do you know how to provide financial security for a loved one without jeopardizing their eligibility for government benefits? The two most common tools for achieving this are special needs trusts (SNTs) and ABLE accounts. How do you decide which option works best?
Special Needs Trusts vs. ABLE Accounts
A special needs trust is a legal agreement allowing a third party to set aside assets that benefit an individual with disabilities. An Achieving a Better Life Experience (ABLE) account is a tax-advantaged savings account that allows individuals with qualifying disabilities to save money in their name without losing access to SSI or Medicaid.
Special needs trust funds are typically managed by a trustee and often used to enhance the beneficiary’s quality of life. Funds can cover expenses such as therapy, travel, personal care, or education, with key features that include:
- No resource limit — SNTs can hold unlimited assets without affecting eligibility for needs-based benefits.
- Third-party contributions — Parents, grandparents, and others can contribute to the trust.
- Funding flexibility — Trustees can use funds for a wide variety of supplemental expenses.
Most special needs trusts are permanent and carefully structured to comply with federal and state law, making them irrevocable in most cases. Contact an estate planning attorney for more information.
ABLE Account Benefits vs Trust
ABLE accounts have annual contribution limits of up to $18,000 per year, with higher limits if the beneficiary is working. Moreover, they offer tax-free growth with earnings and withdrawals for qualified disability expenses, available without penalty. The individual with disabilities can directly manage an ABLE account, and upon the beneficiary’s death, all remaining funds can be used to reimburse Medicaid.
Pros and Cons of Special Needs Trust vs ABLE Account
Special Needs Trust Pros and Cons
Pros
- Can hold large sums (inheritance, life insurance, settlements, etc.)
- Provides structured management
- Flexible for broad expenditures
- No Medicaid payback with third-party trust
Cons
- Complex and costly setup
- Less direct control for the beneficiary
- Requires careful trustee selection and management
ABLE Account Pros and Cons
Pros
- Simple and affordable setup
- Tax-free savings growth
- Empowering beneficiaries with easy fund management
- Works well with modest savings and daily expenses
Cons
- Annual contribution limits
- Medicaid payback may reduce inheritance
- Only available if disability onset is before age 26
- Balances over $100,000 may affect SSI eligibility
In many cases, the decision of whether to use a special needs trust versus an ABLE account is challenging. Some individuals choose both since these tools often complement each other. Discuss your options with an estate planning attorney today.
How to Choose
Use special needs trusts when family members want to leave a large inheritance or life insurance proceeds. Use an ABLE account when the individual wants more independence and control over everyday spending.
Special needs trusts work best when you want to protect assets long-term without risking benefit eligibility, but an ABLE account is ideal to save modest amounts with tax advantages and for flexibility over qualified disability expenses.
Together, a special needs trust and ABLE account can create a well-rounded estate plan. A knowledgeable estate planning attorney can help evaluate your family’s financial situation and coordinate these tools with your broader estate plan, including wills, powers of attorney, and healthcare directives.
Don’t leave your loved ones’ financial security to chance. Schedule a free consultation with Nicole Pavlik Law Firm to discuss your needs.