ABLE Accounts and Special Needs Trusts: What to Know

Millions of Americans with disabilities depend on a wide variety of public benefits for income, health care, food, and housing. Many of these benefits are means-tested, meaning that they impose limits on participants’ income, assets, or both. Those limits can vary between states and between programs.

The ABLE Act Offers More Possibilities

The federal Achieving a Better Life Experience (ABLE) Act, which was passed in 2014, authorized states to establish tax-advantaged savings programs so individuals with disabilities can save and invest up to $16,000 per year. Those funds grow tax-deferred, and can be withdrawn tax-free, as long as they are used for “qualified disability expenses,” These include things like education, medical and dental care, employment training, community-based programs, assistive technology, transportation, and housing. As of February 2022, 46 states have active ABLE programs, but you can still open an ABLE account in any state that accepts outside residents into their program.

ABLE accounts allow for the accumulation of resources for the benefit of an individual with a disability without jeopardizing key federally funded benefits like Supplemental Security Income (SSI) and Medicaid. People have the potential to build a retirement plan because of the ABLE program. It’s estimated that that anywhere from five to seven million people could be eligible for ABLE, but unfortunately only about three percent of those individuals are aware of its existence.

Another vehicle that is utilized for those with disabilities is the Special Needs Trust (SNT). These trusts are durable, flexible, well tested, and can manage and protect large sums of money. SNTs are available to a wider class of individuals than ABLE accounts, which require that participants be eligible for benefits based on a disability that began before age 26.  And while there are limits on how much an ABLE account can hold without jeopardizing eligibility for SSI, SNTs generally have no such limits. They also tend to provide more flexibility around investments. For those reasons, ABLE accounts work well for small-to-moderate amounts of money, while SNTs tend to be a better fit for larger sums, including gifts and inheritances.

ABLE accounts and some SNTs have “payback provisions,” requiring that when the beneficiary dies, the state be reimbursed for the amount of medical assistance it paid out. However, if an SNT is funded only by contributions from people other than the beneficiary, it does need to have payback provisions. This can be one of the most important considerations in deciding what type of account or trust to establish.

People using either the SNT or ABLE would benefit from having a legal perspective, notes Kathleen A. Cassidy, JD and Vice President of Advanced Markets at Barnum. “Special Needs Trusts and ABLE accounts are designed to protect eligibility for SSI and Medicaid. That means that in addition to all the usual considerations around trusts and investment accounts, they have to be established and administered with careful attention to state and federal public benefits law.” This is an area where it’s especially important to get advice from qualified legal, tax, and financial advisors. Whether the choice is an ABLE account or an SNT, the options and help are there for Americans with disabilities.

CRN202505-2512364