Planning for your loved one’s future is an act of love. But navigating the complex array of financial tools, government regulations, and long-term expenses can feel overwhelming. For families with loved ones who have disabilities, tools like ABLE accounts and Special Needs Trusts (SNTs) are essential for ensuring financial stability while protecting access to benefits like Medicaid and Supplemental Security Income (SSI).

The good news? These tools are designed to empower you to make informed, impactful decisions. This guide from HealthyFP explains the pros and cons of ABLE accounts and SNTs, offers practical advice, and explores how you can combine these options to make the best choice for your family.  

What Is an ABLE Account?

An ABLE account (Achieving a Better Life Experience account) is a modern savings tool created specifically for individuals with disabilities. It allows families and individuals to save tax-free for disability-related expenses without jeopardizing their eligibility for government benefits. Think of it as the disability-focused sibling of a 529 College Savings Plan.

Key Benefits of ABLE Accounts

• Tax-Free Savings: Any earnings in the account grow tax-free, making it an appealing tool for long-term savings.
• Save Beyond $2,000: Unlike traditional savings, ABLE accounts allow you to deposit beyond the typical threshold for SSI and Medicaid eligibility.
• Financial Independence: Empower individuals with disabilities to manage a portion of their finances.

What Can an ABLE Account Cover?

ABLE accounts can pay for a variety of "Qualified Disability Expenses" (QDEs), which include needs that enhance the beneficiary's quality of life. Common categories include:

• Housing: Rent, mortgage payments, and utility bills
• Education: Tuition, books, and training programs
• Healthcare: Medical services, therapies, and prescriptions
• Transportation: Accessible vehicles and travel expenses
• Assistive Technology: Equipment like wheelchairs or smart devices

Nerd Note: Did you know that housing payments from an ABLE account won’t trigger in-kind support penalties for SSI? That’s a significant advantage over other financial tools!

Who Qualifies for an ABLE Account?

Eligibility is restricted to individuals who experienced the onset of their disability before the age of 26. Beneficiaries must meet the Social Security Administration's disability criteria.

What Is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal arrangement that allows individuals with disabilities to maintain eligibility for government benefits while also receiving supplemental financial support. Funds in an SNT are managed by a trustee, ensuring they are used in the beneficiary’s best interests.

How SNTs Work

SNTs are flexible and powerful financial tools for families looking to set aside significant funds. Here's how they function:

• Managed by a trustee, who oversees fund distribution for the beneficiary.
• No cap on the total amount of funds, providing room for significant long-term savings.
• Structured to protect government benefits like SSI and Medicaid.

What Can SNT Funds Be Used For?

SNT funds cover a wide variety of needs aimed at improving the beneficiary’s quality of life. These might include health care, therapy, and personal development expenses. However, be aware that food and housing costs can lead to "in-kind support and maintenance" (ISM) penalties that could affect SSI.

Types of Special Needs Trusts

There are three main types of SNTs, each catering to specific circumstances:

• First-Party SNT: Funded with the beneficiary's own assets, often requiring Medicaid payback.
• Third-Party SNT: Created using funds from someone other than the beneficiary, such as a parent or grandparent, and free from Medicaid payback.
• Pooled SNT: Managed by nonprofit organizations that combine financial resources for investment efficiency.

Nerd Note: While third-party SNTs don’t require Medicaid payback, it’s common practice for first-party SNTs to do so after the beneficiary passes away.

Comparing ABLE Accounts and SNTs

Contribution Limits

• ABLE accounts have annual contribution caps linked to federal gift tax limits. Exceeding $100,000 could disrupt SSI.
• SNTs have no limits on contributions or account balances, making them better for larger savings.

Investment Flexibility

• ABLE accounts offer limited investment options dictated by state programs
• SNTs provide more diverse and customizable investment opportunities, overseen by a trustee.

Costs and Fees

• ABLE accounts typically feature nominal fees for maintenance.
• SNTs can be more expensive due to attorney fees and trustee charges, but pooled SNTs offer a budget-friendly alternative.

Medicaid Payback

• ABLE accounts are subject to Medicaid payback for expenses incurred post-account creation.
• SNTs have varying payback terms, with third-party SNTs being exempt.

ABLE and SNTs Together - A Winning Combination?

For many families, the best solution is not choosing either ABLE accounts or an SNT, but using both together strategically. Here’s how the duo can work in harmony:

• Housing Expenses: Transfer SNT funds to an ABLE account to pay for rent or utilities without triggering ISM penalties.
• Flexible Budgeting: Use ABLE accounts for day-to-day expenses while reserving SNT funds for long-term financial planning.

Example Scenario: Laura’s parents set up a third-party SNT for her future needs while she manages her ABLE account for housing and transportation. Together, these tools provide financial stability and independence.

Choosing the Right Tool for Your Family

Deciding between ABLE accounts, SNTs, or both requires carefully assessing your family’s unique situation. Here are a few questions to guide the process:

Questions to Consider

• What are your financial goals for your loved one?
• What types of expenses will you need to cover most often?
• Are there state-specific benefits for ABLE accounts where you live?

Finding the Best ABLE Account by State

ABLE accounts are state-administered, making it crucial to compare plans to find the ideal fit. Look at factors like fees, Medicaid payback policies, and investment choices before enrolling.

Nerd Note: Many states allow non-residents to open ABLE accounts, providing additional flexibility.

A Path Toward Financial Confidence

Balancing future financial security with maintaining government benefits doesn’t have to feel impossible. Both ABLE accounts and SNTs offer tools to enhance your loved one’s quality of life without sacrificing essential protections.

Need help planning for your family’s future? Our financial planning experts at HealthyFP are here to guide you every step of the way.