What is the Difference Between a Special Needs Trust and an ABLE Account?

Special needs trusts and ABLE accounts are both financial vehicles that are specifically designed to help individuals with special needs. They both offer similar benefits, but they have different purposes and eligibility requirements. This article provides an overview of the key differences between a special needs trust and an ABLE account.

What are the Eligibility Requirements for a Special Needs Trust?

The requirements for an individual to be eligible for a special needs trust are as follows: 

  1. They need to be age 64 or younger
  2. They need to have a disability

A special needs trust has to be established by either a parent, a grandparent, a legal guardian, or the court. Alternatively, if a client is a competent—but disabled—adult, they can establish it for themselves. Once they become eligible, the funds inside the trust can then be used for their benefit.

What are the Eligibility Requirements for an ABLE account?

For an individual to be eligible for an ABLE account, the requirements are as follows:

  1. They have to have been deemed disabled before the age of 26 
  2. They must meet either one of two severity of disability requirements:
    • If they are receiving SSI or SSDI
    • If they possess a disability certification signed by a licensed physician saying that they meet the SSA’s definition of disability.
  3. The individual who opened the account needs to be a designated beneficiary on the account

Once an individual becomes eligible for an ABLE account, the funds inside the account can be used for the same things that the funds inside of a special needs trust can be used for, such as medical expenses, rehabilitation services, legal expenses, or insurance expenses, for example. 

Unlike special needs trusts, however, an ABLE account can pay for food and housing expenses. These types of expenses cannot be paid from a special needs trust.

The major limitation of an ABLE account, aside from the requirements above, is that only $16,000 can be placed into an ABLE account in any given year (whereas there are no contribution limits in a special needs trust).

Which is Better: Special Needs Trust or ABLE Account?

Although a special needs trust and an ABLE account both offer benefits, there are several reasons why an ABLE account has become increasingly popular: 

  1. ABLE accounts are typically more flexible than special needs trusts, especially in terms of what the funds inside the account can be used to benefit the beneficiary.
  2. Unlike a special needs trust, an ABLE account does not require someone to administer the trust as a trustee. A special needs trust requires at least one trustee to provide oversight to ensure the funds are being used for the beneficiary’s benefit. 

In some cases, an ABLE account may be exactly what an individual requires. In other cases, a special needs trust may be the better option. Or, it could be a combination of both. So, if you have questions about special needs trusts or ABLE accounts, or if you have clients that may benefit from either (or both), give us a call now so we can help you figure out which option is the best for your client.

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