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ABLE Accounts and Special Needs Trusts    

ABLE Accounts vs. Special Needs Trusts: How to Best Provide For Your Disabled Loved Ones

People who have loved ones with disabilities and need a way to save money tax-free often create a special needs trust (SNT) to supplement their loved one’s unique requirements and quality of life while continuing their eligibility for public assistance programs. In 2014, the ABLE Act (Achieving a Better Life Experience) became a second financial vehicle permitting a disabled individual to accumulate resources with tax advantages but not jeopardize key federally funded benefit programs like Medicaid and Supplemental Security Income (SSI) or Social Security Disability Income (SSDI). Which financial strategy is better – ABLE Accounts or Special Needs Trusts? The answer is… it depends. 

Differences Between ABLE Accounts and Special Needs Trusts

There are some significant differences between them regarding saving and spending rules. ABLE accounts and special needs trusts have different annual saving limitations. Depending on your circumstances, you might use both financial products. However, only one ABLE account is permissible for each disabled individual.

While an ABLE account is easier to set up and manage, its primary disadvantage is contribution limits. The total annual contribution possible by a participating account funder is $16,000. Each state has an ABLE limit ranging from $235,000 to $500,000. Persons with disabilities who receive SSI are also subject to additional limitations. A special needs trust has no monetary limits; however, it is more complex to set up and manage. Some families set up an ABLE account for everyday expenditures and maintain an SNT for larger purchases.

Similarities Between ABLE Accounts and Special Needs Trusts

An ABLE account has some similarities to an SNT as both are tax-advantaged savings vehicles for individuals with disabilities before the age of 26. The beneficiary, family, and friends can all contribute to the account, and neither an ABLE account nor SNT affects public benefits eligibility. For the beneficiary, funds within both financial products grow and distribute tax-free.

But, an ABLE account has more purchase options than an SNT. Qualified Disability Expenses (QDEs) include:

  • Housing
  • Transportation
  • Food
  • Education
  • Employment training and support
  • Health prevention and wellness
  • Assistive technology and personal support services
  • Financial management and administrative services
  • ABLE account expenses for oversight and monitoring
  • Legal fees
  • Funeral and burial
  • … And more

In contrast, an SNT design is to pay for “extras” to make life more comfortable. Extras may include:

  • Home furnishings
  • Assistive technology
  • Therapies Medicaid doesn’t cover
  • Pets
  • Entertainment
  • Vacations

This narrower range of permitted expenses is why families will often establish both financial vehicles.

Accessing Funds, Taxes, and Expenses

Money in an ABLE account is easy to access. Many programs offer a debit card linked to the account so you can pay for items directly. In an SNT, the trustee needs to make the funds available to the beneficiary. This oversight by a trustee ensures the beneficiary must get permission before using a credit or debit card to purchase items or obtain cash that may not qualify for the SNT rules. A newer option for an SNT is a True Link debit card, a trustee-managed prepaid card. Still, purchases must not disqualify the beneficiary from government benefits programs.

The person with disabilities conducts ABLE account ownership and management. Since the money in an ABLE account is tax-free, management is quite simple. However, they must ensure their expenditures qualify as a QDE. The trustee of the SNT is responsible for following the trust guidelines, keeping records of expenses, and producing tax information annually as the trust grantor pays taxes. When the person who owns an ABLE account dies, the money left is likely to be used for state Medicaid agency services reimbursement. A special needs trust is created with other people’s money (parent, grandparent), and as a third-party trust does not have to repay Medicaid after the beneficiary dies.

Every family has different circumstances and needs. A disability planning attorney can explain the varied purposes of an ABLE account or SNT and how they can benefit your loved one. It may be that both financial products suit your planning needs to protect a loved one with a disability. Call Andre O. McDonald, a knowledgeable Howard County, Montgomery County and District of Columbia estate planning, special-needs planning and Medicaid planning attorney, at  (443) 741-1088; (301) 941-7809 or (202) 640-2133 to schedule a consultation today.



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For help with estate planning, special needs planning or elder law throughout Howard, Montgomery, Prince George’s, Anne Arundel, and Baltimore County; and Baltimore City, contact McDonald Law Firm, LLC.

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