As financial experts, we have to say it: Every person should do their due diligence to plan for a successful financial future. Planning is even more critical for those with special needs; we see the importance every day in our work at Milestone. In addition to providing financial security, proper planning ensures lifelong care and continued eligibility for government benefits. Two tools often accomplish these goals: special needs trusts and ABLE accounts. While both work to achieve the above goals, they each function differently. Below is a breakdown of the difference between an ABLE account and a special needs trust.
Special Needs Trusts
A special needs trust can benefit an individual under age 65 with a disability by government standards. This type of account allows the beneficiary to hold income in trust for their benefit without having those assets disqualify them from certain government benefits like Supplemental Security Income (SSI) and Medicaid.
There are two common types of special needs trusts. A first-person trust requires assets come from the beneficiary. In contrast, a person’s family members establish a third-party trust to ensure the present and future care they want and expect. Here are more details on the difference between first-person and third-party special needs trusts.
The Achieving a Better Life Experience Act of 2014, or the ABLE Act, assists people in saving private funds. Called ABLE accounts, these funds support those with disabilities to maintain their health, independence, and quality of life. They also provide secure funding for disability-related expenses when a person receives SSI and Medicaid. Funds from an ABLE account will supplement, but not replace, those needs-based government benefits.
The ABLE Act limits account eligibility to individuals whose onset of disability occurred before age 26. An ABLE account covers qualified disability expenses (QDEs), which include items like education, housing, and transportation.
Why They’re Useful
Beneficiaries of needs-based government benefits cannot receive income over a certain threshold. If one has too high of an income at a certain point in time, this may disqualify him or her from these government programs. For SSI beneficiaries, the Social Security Administration calculates “countable income.” On the other hand, income eligibility for Medicaid depends on a person’s Modified Adjusted Gross Income. If a beneficiary is about to receive an inheritance or personal injury settlement, that influx of income could impact eligibility for SSI and Medicaid.
Since ABLE accounts and special needs trusts allow a person to pay for resources that these programs do not cover, the funds in those accounts do not count as income. Some “non-countable resources” for SSI include a home, vehicle, certain life insurance policies, and other items, for example. By using one or both of these planning tools, children and adults with special needs can keep their benefits and their money.
While ABLE accounts and special needs trusts both work well on their own, a person can also establish and use them in conjunction. Doing so can offer more flexibility in savings and spending.
How to Choose Between ABLE and SNT
First, the age criteria for each account is important when deciding to establish an ABLE account, special needs trust, or both.
Who will establish and maintain the account is another factor. The beneficiary can establish his or her own ABLE account. If they need help, a parent, conservator or guardian or an individual with power of attorney can establish and manage the account. Special needs trusts have the flexibility of choosing between a first-person or third-party trust. Each has its own perks and rules.
Other important considerations include:
- Contribution limits
- Investment options
- Fees and taxes
- How the beneficiary would best use the funds
When preparing for an influx of money as an SSI and Medicaid beneficiary, an expert’s help can make a difference. If you’re interested in learning more about ABLE accounts and special needs trusts, let’s talk.