What to Know About ABLE Accounts and Special Needs Trusts

Jun 6, 2024 | Estates Planning and Asset Protection

I’ve been practicing law in Texas for more than 16 years. As an estate planning attorney who regularly deals with special needs trusts, I am familiar with the difficulties that families encounter when attempting to plan for their disabled loved ones’ future. Two versatile and robust tools at their disposal to facilitate enduring financial stability for their disabled beneficiaries are Special Needs Trusts and ABLE Accounts.

An Overview of ABLE Accounts

Established by the ABLE Act of 2014, ABLE (Achieving a Better Life Experience) Accounts are tax-advantaged savings accounts that assist families and individuals with disabilities in saving for expenses associated with their disability. In order to qualify, the individual’s disability must have manifested prior to reaching the age of 26.

Highlights of ABLE Accounts

Some highlights of ABLE Accounts include the following: 

  • Funds contributed are received after-tax and accrue without taxation.
  • Distributions are tax-free for qualified disability expenses.
  • Education, housing, transportation, vocational training, assistive technology, and healthcare are all considered qualified expenses.
  • Annual contributions are restricted to the amount that is exempt from gift tax, which in 2023 is $17,000.
  • Balances in an ABLE account of up to $100,000 are not considered when determining SSI eligibility.

An Overview of Special Needs Trusts (SNTs) 

Legal structures known as Special Needs Trusts (SNTs) are specifically formulated to hold and administer assets in a manner that safeguards the eligibility of an individual with a disability for government benefits based on their requirements, such as Supplemental Security Income (SSI) and Medicaid.

Two primary varieties of SNTs exist:

  • Self-Settled aka First Party SNTs: These are established with the beneficiary’s personal assets, such as a settlement from a personal injury claim or inheritance.
  • Third-Party SNTs: These are supported by family assets or the assets of other third parties.

SNTs have the capacity to provide financial support for an extensive array of enhancements to the beneficiary’s quality of life. These may include:

  • Individual care attendants
  • Dental and out-of-pocket medical expenses
  • Engaging in recreational activities
  • Modifications and furnishings for the residence

How Can Special Needs Trusts and ABLE Accounts Be Leveraged?

Although ABLE Accounts and SNTs fulfill comparable objectives, they possess unique merits and drawbacks. By leveraging both of these tools, families and advisors can develop a financial strategy that optimizes advantages and flexibility for their disabled family members.

SNTs and ABLE Accounts can be leveraged as follows:

  • An ABLE Account may be funded with an SNT, enabling tax-free accumulation and distributions for qualified disability expenses. 
  • Housing expenses can be covered with ABLE Accounts, whereas this is not possible with SNTs without influencing SSI benefits. 
  • SNTs are capable of covering a wider variety of supplemental costs. 
  • Medicaid Payback – Depending on state laws, First-Party SNTs are liable to Medicaid payback upon the beneficiary’s death, whereas ABLE Accounts may not be subject to payback. 
  • Age Restrictions – Unlike SNTs, ABLE Accounts impose an age restriction on the onset of disability.

Get Started With a Trusted Texas Special Needs Planning Attorney

ABLE accounts and SNTs must be meticulously planned and administered to maintain eligibility for government benefits and ensure compliance with distribution guidelines. It is crucial to work with an experienced special needs planning attorney who is familiar with these tools and can assist in developing a plan tailored to your loved one’s specific circumstances and requirements. 

At Shann M. Chaudry, Esq. Attorney at Law, our firm understands the emotional and financial obstacles that families encounter when creating plans for their disabled loved ones.

We approach each case with empathy, experience, and a steadfast dedication to ensuring our clients’ utmost confidence in our ability to provide optimal care for their loved ones.

Please do not hesitate to contact us if you have any inquiries regarding ABLE Accounts, Special Needs Trusts, or any other facet of Special Needs Planning. Our presence is to provide comprehensive guidance at each stage of the process.

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