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

Parents of a child with disabilities often ask us, if they’re planning for that child’s inheritance, whether or not they should set up an ABLE account or create a special needs trust as part of their estate plan. Our discussion is that both of those vehicles might be useful tools for planning for their child with disabilities to maximize the life options for them long-term.

The ABLE account, an Achieving a Better Life Experience account, is a way to set aside funds in a in a tax-advantaged account that could be managed for a child with disabilities who has capacity to manage their own assets and is over the age of 18. But that child with disabilities, their disability would have had to have arisen before age 26 in order to establish that ABLE account. Any funds a parent contributes to that ABLE account for that child, at the end of the day will have to repay Medicaid for Medicaid medical assistance received by that child.

An ABLE account might be a useful tool but it’s not a substitute for a third party special needs trust that we often prepare for parents of children with disabilities in connection with their estate planning.  That third party special needs trust is going to have no cap on the amount they can contribute to. It can receive the entire inheritance for that child when that parent dies. It could receive real estate. An ABLE account can’t receive real estate.

An ABLE account has a cap on how much it can receive in any given year. So third party special needs trusts are a really nice companion piece to an ABLE account.  They won’t substitute the other.  An important piece of the analysis is that a third party special needs trust doesn’t have to repay Medicaid at the end of the day.  Assets can flow to other children when that child with disability dies. It can flow to grandchildren or siblings of that individual. It doesn’t have to repay the state for Medicaid assistance. So ABLE accounts are a really useful tool but they’re not a substitute for third party special needs trusts, in our opinion.

Milestone Ages Special Needs Planning