When you’re planning for the future of a loved one with a disability, ensuring they have financial support without jeopardizing their access to benefits is key. Two common options, ABLE Accounts and Special Needs Trusts, each offer distinct ways to manage funds while safeguarding eligibility for essential government programs. These financial tools are designed to protect assets and enhance quality of life, giving your loved one more flexibility for expenses. With thoughtful planning, you can create a financial strategy that prioritizes their independence, stability, and overall well-being.
What Is an ABLE Account?
An ABLE Account, or Achieving a Better Life Experience Account, is a tax-advantaged savings account designed to support individuals with disabilities. This account allows people with disabilities to save and invest money for qualified expenses, such as housing, transportation, education, and healthcare, without jeopardizing eligibility for needs-based government benefits like Supplemental Security Income (SSI) and Medicaid.
To open an ABLE Account, the individual must have a significant disability that began before age 26. One of the main benefits is that funds in an ABLE Account grow tax-free as long as they’re used for eligible expenses. However, there are limits: the annual contribution cap for an ABLE Account is $18,000 for 2024, though this amount can vary with IRS adjustments. With its simplicity and flexibility, an ABLE Account can be a valuable tool for everyday expenses and long-term planning.
What Is a Special Needs Trust?
A Special Needs Trust (SNT) is a legal arrangement that allows individuals with disabilities to receive financial support without risking their eligibility for essential government benefits like SSI and Medicaid. This trust holds assets separately from the individual’s personal finances, allowing the funds to be used for a wide range of expenses beyond basic needs—such as transportation, therapy, personal care, and recreational activities. By keeping these assets in a trust, families can help their loved one enjoy a better quality of life without exceeding the strict asset limits tied to benefit programs.
An SNT is managed by a trustee, who makes decisions about how and when to use the funds based on the beneficiary’s needs. There are different types of SNTs, including first-party and third-party trusts, each with specific rules about funding sources and uses. Overall, a Special Needs Trust provides flexibility and protection, supporting long-term security and well-being.
Comparing ABLE Accounts and Special Needs Trusts
When deciding between an ABLE Account and a Special Needs Trust, it’s helpful to understand their key differences. While both options help manage funds for individuals with disabilities, each offers unique benefits and limitations. Key differences include:
- Eligibility: ABLE Accounts are available only to individuals whose disability began before age 26. Special Needs Trusts have no age requirement and can be set up for anyone with a qualifying disability.
- Contribution Limits: ABLE Accounts have an annual contribution cap, while Special Needs Trusts don’t have a limit on contributions, allowing families to deposit larger amounts over time.
- Government Benefits Impact: Funds in both accounts are generally exempt from asset calculations for SSI and Medicaid. However, ABLE Accounts may have a total cap after which benefits are affected.
- Use of Funds: ABLE Accounts are restricted to “qualified disability expenses,” while Special Needs Trusts can cover a broader range of needs, from travel to personal items.
Using one or both of these tools can help you tailor financial planning to best suit your loved one’s unique needs.
How to Decide: Factors to Consider
Choosing between an ABLE Account and a Special Needs Trust depends on your loved one’s unique circumstances. Here are key factors to consider:
- Age of Onset: If the disability began before age 26, an ABLE Account is an option; otherwise, a Special Needs Trust may be more suitable.
- Financial Goals: If you plan to save larger sums, a Special Needs Trust offers flexibility without contribution limits.
- Expense Types: For everyday expenses and essentials, an ABLE Account may suffice. If broader spending flexibility is needed, a Special Needs Trust might be better.
- Control Over Assets: An ABLE Account allows the account holder to manage funds directly, while a Special Needs Trust requires a trustee to control and distribute assets.
Making the Right Choice for Your Loved One’s Future
Both ABLE Accounts and Special Needs Trusts offer valuable ways to provide financial security for a loved one with a disability, each with its own strengths. Choosing the right option depends on your family’s specific needs and goals. If you’re ready to explore the best approach for your loved one’s future, contact us at OC Wills & Trust Attorneys. We can help you create a solid, supportive plan for their well-being.
