Able Account vs Special Needs Trusts

ABLE accounts and special needs trusts (SNTs), also known as supplemental needs trusts, both give people with disabilities a way to save money tax-free. By saving money in an ABLE account or supplemental needs trust, you can also make sure that a disabled person continues to be eligible for public programs.

Both ABLE accounts and supplemental needs trusts protect resources. Each allows the accumulation of resources for the benefit of an individual with a disability without jeopardizing key federally funded benefits like Supplemental Security Income and Medicaid.

There are significant differences between the two ways of saving, though. ABLE accounts and SNTs have different rules when it comes to what you can use your savings for. They also have different annual limits on how much you can save. Then there are a number of other differences that may have an impact on you, depending on your circumstances.

In this article, we’ll take a brief look at each type of saving strategy, and then explore the differences between them.

Source: investopedia.com

Key Takeaways

Both ABLE accounts and supplemental needs trusts allow a person diagnosed with disabilities—or their relatives—to save money without affecting their eligibility for public benefits. Prior to 2014, only supplemental needs trusts could be used for this purpose.

ABLE accounts are easier to set up and manage. However, they come with some disadvantages—primarily, limits on the amount of money you can contribute each year.

Supplemental needs trusts don’t have any such limits, but can be expensive to set up and more complicated to manage.

You don’t have to choose one or the other. It’s possible to set up an ABLE account for everyday expenses, and have a supplemental needs trust that you can use for larger purchases that are not covered by public benefits.

Source: investopedia.com

Supplemental Needs Trusts

A supplemental needs trust is a way for a disabled person to receive money without losing access to their public benefits.

Most public assistance programs for people with disabilities have income and asset restrictions—if a disabled person earns too much, or has too much money in savings, they will no longer be eligible for these benefits. A supplemental needs trust is a way around this restriction. Money put in the trust doesn’t count toward the purpose of qualifying for public assistance.

A supplemental needs trust is a legal arrangement and fiduciary relationship. In a fiduciary relationship, a person or entity acts on behalf of another person or people to manage assets. A supplemental needs trust is a popular strategy for those who want to help someone in need without taking the risk that the person will lose their eligibility for programs that require their income or assets to remain below a certain limit.

Establishing a supplemental needs trust can have benefits for both parties. The beneficiary has a way to receive financial support without putting their eligibility for income-restricted programs or services in jeopardy. Meanwhile, the person or party that creates the trust has some reassurance that the proceeds will go to expenses they stipulate. Supplemental needs trusts are irrevocable, and their assets cannot be seized by creditors or by the winner of a lawsuit.

It’s also important to recognize that the money in a supplemental needs trust can only be used for a limited range of expenses. You are not supposed to use these funds to cover basic living expenses. Instead, proceeds from this type of trust are commonly used for medical expenses, payments for caretakers, transportation costs, and other permitted expenses.

Source: investopedia.com

ABLE Accounts

In many ways, an ABLE account is similar to a supplemental needs trust. An ABLE account is a tax-advantaged savings account available to individuals with significant disabilities appearing before age 26. Contributions can be made to the account by the beneficiary, friends, or family members, just as with a supplemental needs trust.

Just as with a supplemental needs trust, money saved in an ABLE account doesn’t affect a disabled person’s eligibility for public benefits. There are also tax benefits to setting up an ABLE account—while the contributions themselves are not intended to be tax-deductible, the funds within the account grow tax-free and distributions are tax-free.3

ABLE accounts are a much newer financial product than supplemental needs trusts. They were created by the 2014 Achieving a Better Life Experience (ABLE) Act as a way of giving more disabled people access to the benefits that, up until then, were restricted to those who held supplemental needs trusts.2

ABLE accounts can be used to pay for a wider range of things than the money in a supplemental needs trust. The money in an ABLE account can be used to pay for any qualified disability expenses (QDE).

Source: investopedia.com

Important

There is an annual limit to how much you can contribute to an ABLE account: $16,000 in 2022. Supplemental needs trusts have no limits.

Source: investopedia.com

Key Differences

There are three main differences between supplemental needs trusts and ABLE accounts: eligibility, the expenses permitted for each type of account, and the limits on how much money you can save through them.

Source: investopedia.com

Eligibility

ABLE accounts are available only for people with onset of a disability prior to age 26, as determined by Social Security’s criteria regarding significant functional limitations stemming from the disabling condition in order to be eligible for an ABLE account.

First-party supplemental needs trusts, which are funded with assets belonging to the beneficiary, must be established before an individual meeting Social Security’s disability criteria reaches the age of 65. There are no age limits for creating third-party trusts, funded with assets belonging to anyone other than the beneficiary.

Source: investopedia.com

Account Limits

ABLE accounts have contribution as well as amount limits. You can only contribute a certain amount each year. This amount is set federally under the same tax code governing 529 plans: $16,000 in 2022. In addition, ABLE accounts have a maximum limit set by the state that manages them. Many states set this limit above $300,000, with only the first $100,000 exempt from impacting eligibility for supplemental security income (SSI). Supplemental needs trusts have no such limits.

One disadvantage of supplemental needs trusts is that they can be expensive to set up. You will typically need to hire an attorney to set up the trust, SpecialNeedsTrusts Online,  a non-profit corporation that provides families with an affordable option can provide this at a fraction of the cost. In contrast, setting up an ABLE account is fast and easy, and can be done directly through the state’s website. No attorney or financial advisor assistance is needed.

Source: investopedia.com

Special Needs Trusts Online Can Help!

I am a Special Needs Trust Attorney and I am here to help. I am the founder of a nonprofit corporation to that provides quality information about Able Accounts and affordable Special Needs Trusts to families. I have over 20 years of experience helping families just like yours. Find out more information at SpecialNeedsTrustsOnline.com or click here to set up a free appointment.

Source: specialneedstrustsonline.com