Special Needs Trust vs. ABLE Account

ABLE accounts and special needs trusts, 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 (SNT), you can also make sure that a disabled person continues to be eligible for public programs.

Both ABLE accounts and SNTs 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 explore the differences between them.

Supplemental Needs Trusts (SNTs)

A supplemental needs trust (SNT) 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. An SNT is a way around this restriction. Money put in the trust doesn't count toward the purpose of qualifying for public assistance.

An SNT 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. An SNT 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 an SNT 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. SNTs 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 an SNT 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.

ABLE Accounts

In many ways, an ABLE account is similar to an SNT. 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 an SNT.

Just as with an SNT, 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.

ABLE accounts are a much newer financial product than SNTs. 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 SNTs.

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

Key Differences

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

Eligibility

ABLE accounts are available only for people with an 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 SNTs, 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.

Account limits

ABLE accounts have contribution limits 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). SNTs have no such limits.

One disadvantage of SNTs is that they can be expensive to set up. You will typically need to hire an attorney to set up the trust. 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.

Permitted expenses

The third main difference between these accounts concerns what you can use them to pay for.

Put simply, SNTs are supposed to pay for "extra" things that make life more comfortable, such as vacations, pets, entertainment, home furnishings, assistive technology, therapies not covered by Medicaid, and more. These are things that public benefits cannot pay for. If the money in an SNT is used to pay for basic costs of living, a person’s public benefits might be decreased.

ABLE accounts have a broader range of permitted expenses. This includes anything that helps a person with a disability improve their health, independence, or quality of life. QDEs can include basic costs of living, as well as costs for education, food, employment, transportation, technology, support services, and more.

Other differences

As well as the fundamental differences mentioned above, these accounts differ in several other ways. These features may make a big difference to you, depending on your situation.

• Everyday management: In general, money in SNTs is more difficult to access. The funds in ABLE accounts can be accessed easily, and many programs offer a debit card that allows you to pay for items directly from the account.
• Who manages the account: ABLE accounts are owned and managed by a person with disabilities, who is responsible for making sure that they only spend money on allowable expenses. SNTs are managed by trustees, who are responsible for keeping records of expenses.
• Tax: The money you keep in an ABLE account is tax-free, but the money kept in an SNT is taxable each year.
• Medicaid liability: Money left in a person’s ABLE account after they die may be used to reimburse the state Medicaid agency for services Medicaid paid for after the ABLE account was created, depending on state regulations. There is often no money left after Medicaid is paid back. SNTs that were created with a parent, grandparent, or other person’s money (known as a third-party trust) do not have to repay Medicaid after a person dies.

SNT vs. ABLE Account: Which Is Better?

Every family’s needs and circumstances are different, and when making financial decisions it’s best to consult a professional. You can find lists of financial professionals who work with people with disabilities online, and the ABLE National Resource Center provides a comparison tool to help you understand how each type of account can help you.

It’s also important to realize that you don't need to choose between an ABLE account and an SNT. You can in fact have both. These accounts are best used for different purposes, despite having some characteristics in common.

According to the team at the ABLE National Resource Center, these financial instruments can work together. That’s because, they explain, “a special needs or pooled trust is considered a 'person' who can contribute to an ABLE account, much like any other third party, without an effect on means-tested benefits. The ABLE account then may, in turn, fund food or shelter expenses of the account owner without a reduction in supplemental security income benefits, unlike the effect which would occur if the SNT or [pooled trust] paid directly.”

If you or a family member are eligible for an ABLE account, it normally makes sense to set one up. This will help to protect a disabled person's access to public benefits, can make tracking expenses much easier, and may give you immediate tax benefits.

There are many factors to consider when choosing the best option for your family, points out Juliana Crist, senior consultant at AKF Consulting, a municipal advisor to state-run investment plans. “Things like guardianship orders, end-of-life planning, tax considerations, Medicaid payback, and total assets all play into the decision of which financial tool to use,” Crist says. Her firm, she continues, “always likes to say that SNTs and ABLE accounts are complementary tools—they work very well together.“

Today, the main reason for setting up an SNT is if you want to put aside more money than ABLE accounts allow—up to about $100,000 without affecting public benefits—or if you want to contribute more than $16,000 per year to the account. In that case, it makes sense to pay an attorney to help you set up an SNT. Even after you set up an SNT, you can keep using your ABLE account for everyday expenses.

The Bottom Line

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

ABLE accounts are much easier to set up and manage. However, they come with some disadvantages: primarily, limits on the amount of money you can save each year. You don’t have to choose one or the other, though. It’s possible to set up an ABLE account for everyday expenses and have an SNT that you can use for larger purchases that are not covered by public benefits.