Planning for the financial future of a loved one with special needs is crucial. Two essential tools in special needs planning are ABLE accounts and Special Needs Trusts (SNTs). Understanding the differences between an ABLE Account and Special Needs Trust will help you make the right choice.
An Achieving a Better Life Experience (ABLE) account is a valuable tool for people with disabilities. As Special Needs Answers reports, they can use it to save up to $18,000 annually starting in 2024. Unlike other accounts, this doesn’t deprive people of means-tested benefits.
ABLE account holders can save up to $100,000 tax-free and spend the funds on disability-related expenses. This covers assistive technology, transportation, education and even leisure activities. Account administration occurs at the state level, and eligibility is set to expand. While anyone disabled before age 26 qualifies now, the threshold will increase to 46 in 2026.
Likewise, individuals can open and manage their ABLE accounts. This provides much more financial independence than a Special Needs Trust (SNT).
A Special Needs Trust (SNT) is a legal document that provisions funds for disabled loved ones. Like the ABLE account, these funds don’t impact eligibility for Medicaid or SSI. An SNT can pay for items that government benefits don’t cover, including therapy, medical care, recreation and travel.
However, there are some limits. Without affecting benefits, SNTs generally can’t be used for essentials, like food and shelter. A Special Needs Trust also can’t cover cash payments or gift cards. Unlike an ABLE account, a trustee manages the SNT. This trustee works with special needs planners to maximize the trust’s value.
One of the main differences between ABLE accounts and Special Needs Trusts is their contribution limits. ABLE accounts are capped at $18,000 annually, with a total savings limit of $100,000. SNTs have no set contribution or savings limits but have tighter controls.
An individual manages their ABLE account. In comparison, a trustee manages an SNT in the name of a disabled individual.
Another critical difference is eligibility of the disabled person. For now, ABLE accounts are only available to people who became disabled before age 26. This is in contrast to SNTs, which have no age restrictions. An SNT is ideal for long-term asset management, while ABLE accounts offer flexibility.
Consult with an elder law attorney to have a full understanding of the differences between an ABLE Account and a Special Needs Trust. Choosing between the two depends on your family’s goals and needs. If you’re looking for a quick, easy, flexible way to save for a loved one’s disability-related expenses, an ABLE account might be ideal. However, a Special Needs Trust is better for long-term planning with no savings limits.
Key Takeaways:
- ABLE Account: Offers flexibility and direct control for disabled individuals, with a $100,000 savings limit.
- Special Needs Trust: Offers greater flexibility and long-term security but requires a trustee for oversight.
- Planning is a Must: An ABLE Account or SNT may better fit your situation. Either way, you should begin planning sooner rather than later to protect your loved one.
- Plan Ahead: Work with an estate planning attorney to decide which tool is best for your family.
If you would like to learn more about special needs planning, please visit our previous posts.
References: Special Needs Answers (Nov. 13, 2023) “ABLE Accounts in 2024: Save Up to $18,000 Annually”
Special Needs Answers (February 12, 2019) “What Can a Special Needs Trust Pay For?”
Image by Mohammed Shafi
