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April 18, 2025
A special needs trust (SNT) and an Achieving a Better Life Experience (ABLE) account each provide a tax-free way for people with disabilities to save money. Both options provide a mechanism for saving money and protecting resources that ensures the disabled individual remains eligible for public benefits. Accumulating resources without jeopardizing key government benefits like Supplemental Security Income (SSI) and Medi-Cal (Medicaid) can reduce monetary pressures and greatly enhance the lives of those with disabilities.
Significant differences exist between the saving rules of an ABLE account and special needs trust (may be referred to as supplemental needs trust if not created with assets not owned by the beneficiary). Each also has different rules regarding the use of the savings and different annual limits on the amount you can save.
Your unique circumstances can directly impact each saving strategy type. This is why understanding how to set up and manage the best option for you is crucial. A special needs planning attorney can explain whether one or the other – or both – account types can work for your situation.
ABLE accounts tend to be easier to create and manage, yet they have some drawbacks. One downside is the limit on the contribution you can make annually.
A special needs trust has no contribution limits. However, it can be expensive to create and typically more complex to manage.
The advantage of having both is that an ABLE account can pay for everyday expenses, while a special needs trust can cover those larger purchases that public benefits do not cover.
Most public assistance programs are means-tested, meaning they have asset and income restrictions an applicant must meet. If a disabled individual has too much money in their savings or earns too much money, they may not qualify for these benefits.
Using a special needs trust (SNT) allows a workaround for these restrictions. The money put into the trust won’t count toward the eligibility qualification for public assistance. It is permissible for family and friends to contribute financially to the beneficiary’s SNT.
A special needs trust is a legal arrangement and a fiduciary relationship with a person or entity acting on behalf of another to manage these assets. Establishing an SNT can benefit both parties beyond the protection of public benefits. The creator of the trust, called the grantor, has assurance that trust proceeds will go to the expenses as stipulated. Creditors and legal judgments also can’t seize the trust assets.
Several types of special needs trusts exist. For example, if the beneficiary can financially contribute to a trust for themselves and is under 65, a special needs planning lawyer can create an SNT known as a first-party special needs trust (self-settled SNT). (Read more in a related article about first-party, third-party, and pooled SNTs.)
However, the money in an SNT can only fund a limited range of expenses. A special needs planner can clarify which expenditures from the SNT conflict with government eligibility regulations for benefits programs. These funds may not cover certain basic living expenses, but can pay for the following:
The list generally excludes rent or mortgage payments, property taxes, homeowners insurance dues, homeowners insurance, and utilities like gas, electricity, and water.
This type of savings account still provides a tax advantage for a disabled beneficiary, but it is currently available only to individuals whose disability was established before age 26. It is permissible for friends, family members, and the beneficiary to contribute to the account. The money accrued in an ABLE account won’t affect a person’s eligibility for public benefits programs.
While the ABLE account contributions are not tax-deductible, the funds that grow within the account are tax-free, as are the distributions. An ABLE account is a newer financial product in comparison to an SNT. Its policy goal was to give more individuals with disabilities access to more benefits that previously were available only to those with a special needs trust.
Additionally, the monies in ABLE accounts can pay for a wider range of costs than an SNT. These expenses are known as Qualified Disability Expenses (QDEs). Funds in an ABLE account can cover such expenses as:
The three key differences between SNTs and ABLE accounts are eligibility, allowable expenses in each account type, and limits on the money you can save.
ABLE accounts are available only to persons with a disability onset before age 26 as determined by the Social Security Administration's criteria. (This age limit will adjust to age 46 in 2026.)
There are no age limits in creating a third-party SNT, but funding can't include the beneficiary's own assets. A first-party SNT is self-funded by the person with a disability but must be created (and funded) before they reach age 65.
An SNT's design is to pay for extra things that make life more comfortable, like vacations, pets, home furnishings, and entertainment, without covering any benefit paid for by a public assistance program. If an SNT does pay for such benefits, the beneficiary may see a reduction or elimination of public benefits.
ABLE account allowable expenses have a broader range. Anything that helps a person with a disability to improve their independence, health, or quality of life is acceptable. QDEs can include basic living costs such as education, food, employment, technology, and more.
ABLE accounts have amount and contribution limits. Contribution amounts are finite for each year and are under federal tax code governance. Additionally, ABLE accounts have a maximum limit set by the states that manage them. Many states have a maximum limit set above $300,000, with only the first $100,000 exempt from impacting eligibility for Supplemental Security Income.
A special needs trust has no such limits; however, they can be more expensive to create.
Every family has unique needs and circumstances when deciding whether a Special Needs Trust (SNT), an Achieving a Better Life Experience (ABLE) account, or both, is the best option for their loved one with disabilities. Planning for a loved one with disabilities involves complex financial decisions, especially when considering tax-free savings options like SNTs and ABLE accounts. Each option offers distinct advantages for protecting eligibility for public benefits while saving for a better quality of life. At Chubb Law Firm PC, we can help you navigate these choices and determine the best strategy for your family’s unique situation. Contact us today at 916-241-9661 to schedule a Discovery Meeting.
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