
ABLE Account vs. Special Needs Trust: Which Is Best for Your Loved One?
Planning for a loved one with special needs involves balancing care, financial stability, and long-term eligibility for benefits like Medicaid. Two common tools—ABLE accounts and Special Needs Trusts—offer different advantages, and choosing the right one can feel overwhelming.
At Commonwealth Life and Legacy Counsel, we help families across Central Virginia create thoughtful, effective plans that protect loved ones now and in the future.
In this article, we’ll compare these two options so you can better understand how each works, who qualifies, and which may be the right fit for your unique situation.
What is an ABLE Account?
Let’s begin with the Achieving a Better Life Experience (ABLE) account. This savings option allows individuals with disabilities to keep money set aside for disability-related expenses without losing needs-based assistance, such as Supplemental Security Income (SSI) or Medicaid. In 2014, federal legislation authorized ABLE accounts to give folks a tax-friendly way to manage everyday or occasional medical, living, or personal expenses.
In Virginia, these are often called “ABLEnow” accounts. Contributions can come from various sources, and the funds then grow without federal tax on earnings, as long as withdrawals go toward covered items. The primary person who benefits can also manage these funds with a debit card, assuming they have the ability to do so.
There are certain rules, though. In order to open one, the person’s disability must have started before they turned 26. If that condition is met, the beneficiary can place savings or earnings here up to yearly contribution limits. This approach is popular for those needing a simple way to keep money for items like therapy, rent, or educational classes, without risking critical government-based medical services.
- Funds grow tax-free if used for disability costs.
- A debit card can be used for spending.
- Those who work can add part of their wages, subject to limits.
What is a Special Needs Trust?
We also have the Special Needs Trust (SNT), sometimes called a Supplemental Needs Trust. This arrangement is designed to hold property or funds for an individual who receives assistance such as SSI or Medicaid. By legally separating the beneficiary’s personal finances from those placed within the trust, the SNT avoids bumping up against the usual limits for federal or state benefits.
An SNT can pay for far more than just doctor’s visits. It might cover advanced care therapy, assistive devices, social programs, or even travel, depending on how the trust is drafted. The trustee, whose task is to manage and release funds, must do so for the sole benefit of the individual with a disability.
There are several types of SNTs, each with their own set of requirements. A first-party trust, using the individual’s own money, might be set up after receiving an inheritance or settlement. A third-party trust, by contrast, is funded by parents, relatives, or other caring parties. This structure makes it possible for family members to keep providing for loved ones without disqualifying them from benefits that are based on financial need.
ABLE Account vs. Special Needs Trust: Key Differences
Families often ask how these two differ, since both are intended to help someone with a disability. Each path has rules that might steer you in one direction or another. Let’s walk through the contrasts in a few categories.
Eligibility Requirements
When it comes to age-of-onset, ABLE accounts require documentation that the disability began before age 26. Someone whose disability started later does not fit the ABLE guidelines, so that tool becomes unavailable for them. Meanwhile, there is no age-based restriction for setting up a Special Needs Trust, so older adults with later-onset disabilities can still benefit from an SNT.
Contribution Limits
An ABLE account allows annual contributions up to a certain sum, currently nearly $18,000 annually (though that number can change with federal adjustments). On the other hand, a Special Needs Trust has no broad cap on total contributions. If a relative wants to deposit a large inheritance beyond the annual gift tax threshold, the trust can handle that amount without complication.
Impact on Government Benefits
Both ABLE accounts and SNTs are largely excluded from asset checks for Medicaid or SSI. However, ABLE accounts hold a cautionary detail: if the balance exceeds $100,000, the beneficiary’s SSI cash payments may pause. Medicaid, though, generally remains intact until the account reaches the state’s 529 plan limit. Under a third-party SNT, there’s no freeze on SSI based on the trust balance, since those funds are not considered countable resources when properly administered.
Permitted Use of Funds
ABLE accounts limit spending to “qualified disability expenses” (QDEs). These might include housing, health treatments, respite, job training, and so forth. Special Needs Trusts operate more flexibly as long as distributions are made in the beneficiary’s best interests. First-party and third-party SNTs have guidelines on how money is spent, but usually cover broader categories beyond routine bills.
Medicaid Payback Provisions
One more key distinction is the potential Medicaid payback. If an ABLE account has leftover funds at the beneficiary’s passing, Medicaid can claim some of the account’s money for services provided after the ABLE account was created. Similarly, a first-party SNT must repay Medicaid for services rendered throughout the individual’s lifetime. On the upside, a third-party SNT does not face a payback, which may enable the leftover funds to pass to other relatives or chosen beneficiaries.
Investment Control
Virginia’s ABLEnow program offers preset investment choices, which might be limited. A Special Needs Trust is guided by a trustee who can pick a financial plan as they see fit, perhaps diversifying more widely. This freedom lets the trustee adjust strategies to current market conditions or the beneficiary’s stage of life. Some prefer the simpler structure of ABLE accounts, while others appreciate a broader range of choices.
Below is a brief comparison chart to illustrate the variations:
Category | ABLE Account | Special Needs Trust |
Age Restriction | Disability onset before 26 | No age limit (varies by trust type) |
Contribution Cap | Annual & lifetime caps | No formal limits |
Type of Expenses | Qualified disability costs | More flexible spending |
Medicaid Payback | Yes, after the account is created | Yes for first-party SNT, no for third-party SNT |
Investment Options | Preset choices in ABLE now | The trustee can choose an investment approach |
How to Decide: Factors to Consider for Virginia Families
The question, of course, is how to pick the right solution for your loved one. It depends on timelines, the volume of assets, and spending preferences. Here are some brief pointers to keep in mind:
- Age of Onset. If your family member’s disability began before age 26, the ABLE route remains open. Otherwise, a trust may be more practical.
- Financial Size. If you anticipate higher balances, a Special Needs Trust might be more comfortable since it has no annual cap.
- Daily or Broader Needs. ABLE accounts are good for ongoing monthly bills or smaller purchases, while trusts can address broader wants and needs, including personal trips, continuing therapy, or custom equipment.
- Who Manages Funds. With ABLE, the individual (or a helper) can oversee spending. With a trust, that duty rests with the trustee.
- Payback Avoidance. If shielding money from future Medicaid claims matters, a dedicated third-party SNT is often the better choice.
In some circumstances, using both can work well. For example, a trustee might place limited sums into an ABLE account each year so the beneficiary can handle daily expenses more directly. The trust, meanwhile, holds larger resources in the background, paying for bigger or occasional outlays. A blend of these two funds can maximize independence for your loved one while also preserving a legacy across generations.
Contact Commonwealth Life and Legacy Counsel for Guidance
At Commonwealth Life and Legacy Counsel, we know each situation has its own personal details and that you might have follow-up questions about setting up an ABLE account or a Special Needs Trust. Feel free to call us in Central Virginia at 434-589-2958 or in Powhatan at 804-598-1348. You can also visit our Contact Us page or email info@winget-hernandez.com. We welcome the chance to talk about solutions that can protect your loved one’s benefits and give them hope for the future. By planning ahead, we can work together to build a more secure environment for years to come.