ABLE Accounts vs. Special Needs Trusts

ABLE Account or Special Needs Trust: Do You Have to Choose?

When you’re planning for the financial future of a loved one with a disability, two common options you may come across are an ABLE account and a special needs trust (SNT).

So, which one do you need?

The answer may not be one or the other. Both can help support an individual with a disability, while protecting eligibility for certain benefits. They work in different ways, but often can work together.

ABLE Accounts & SNTs: The Basics

An ABLE account is a tax-advantaged savings and investment account for eligible individuals with disabilities. Funds can be used for a wide range of qualified disability expenses, including housing, transportation, health care, education, assistive technology and other expenses that help support health, independence or quality of life.

A special needs trust is a legal arrangement designed to hold and manage assets for a person with a disability without jeopardizing eligibility for certain government benefits. Funds are managed by a trustee according to the terms of the trust. The type of SNT varies depending on whose funds they belong to, the individual with a disability or a third-party. 

What’s the Difference?

The biggest differences are the types of assets involved, control and access.

With an ABLE account, the individual with a disability, or an authorized individual acting on their behalf, can manage the account and access funds for qualified disability expenses. Contributions can be received by any person up to $20,000 in total per calendar year. This can offer greater flexibility for everyday needs.

With an SNT, a trustee manages the assets and determines distributions according to the trust’s terms. SNTs can also accept different types and amounts of assets, such as life insurance policies or real property, making them an important option for some families’ longer-term estate and financial planning. Also, there are a variety of types of SNTs depending on who owns the assets and the value of the assets. 

There are differences in how the two are established, funded, managed and taxed, too. An ABLE United account is free to open, and investment earnings can grow tax-free when used for qualified disability expenses. Establishing and maintaining an SNT can be more complex and involve legal, administrative and trustee costs.

Do You Have to Choose?

Not necessarily.

An ABLE account and SNT can play complementary roles. In fact, ABLE United Ambassador Ryan Gebauer uses both. He primarily uses his ABLE account for housing expenses that his SNT isn’t permitted to pay — giving him another way to manage expenses and greater direct access to his money.

For some families, an SNT may help address long-term planning, or unplanned windfalls, while an ABLE account provides added flexibility for qualified expenses today.

Finding the Right Fit

There’s no single financial plan that works for every person with a disability. Your benefits, finances, needs and goals are uniquely yours.

Understanding how ABLE accounts and SNTs differ is a great place to start. A qualified financial, benefits, tax or legal professional can also help you determine how each may fit into your individual plan.

For a more in-depth comparison of plans, click here.