Which is Better – Special Needs Trust vs ABLE accounts
Written by Martin Shields
For individuals with a disability, the current limit of assets they can have in their name without impacting their ability to receive Supplemental Security Insurance is $2,000. To help these individuals meet their financial obligations without impacting their ability to receive government benefits there are two primary strategies, establishing a NYS ABLE (Achieve a Better Living Experience) and a Special Needs Trust (SNT).
ABLE Account Overview
Similar to 529 plans, ABLE accounts are established through each state. These accounts are funded with post tax contributions that grow tax-deferred and allow savings to be withdrawn tax-free as long as they are used for qualified expenses listed below. The NYS ABLE plan (https://www.mynyable.org/) provides six Vanguard risk-based portfolios for investment options. The annual expense for the plan is 0.40% of asset value with a quarterly fee of $11.25. The accounts can have check-writing ability.
Accounts can be established with as little as $25 and the annual maximum contribution is $15,000. However, Assets in these accounts do not impact government benefits with the exception of Social Security Disability which get suspended if the account value is over $100,000.
Qualified Expenses
- Education
- Health and wellness
- Housing
- Transportation
- Legal fees
- Financial management
- Employment training and support
- Assistive technology
- Personal support services
- Oversight and monitoring
- Funeral and burial expenses
Special Needs Trust Overview
A Special Needs Trust (SNT), also referred to as a supplemental needs trust, is a legal document that is designed solely for the financial protection of an individual with a disability. A SNT can be established and funded by individuals with a disability for their own benefit, by a family member, loved one or another third-party. The funds in a SNT do not impact Social Security Disability or Medicaid benefits. A trustee will manage any requested distributions from the account. If there is difficulty identifying a trustee for the account, many communities offer a pooled SNT with trustees who specialize in administering these accounts.
Comparing the Two Approaches
Which option is most appropriate depends upon an individual personal situation. Below is an overview of the pros and cons of each option.
- Account Value Limits – A special needs trust does not have any asset cap that could impact benefits while the ABLE account impacts SSI at $100,000.
- Tax Free Growth – All growth and income in ABLE accounts is tax free as long as funds are used for qualified expenses. All income in SNT is either taxed to the trust if they are retained or to the beneficiary if the income is distributed.
- Legacy – After the death of the beneficiary, ABLE accounts must first pay back all government benefits while SNT funds can be transferred to the remainderman of the trust.
- Cost and Complexity – SNT can be costly and complex to establish, requiring the use of a lawyer who specializes in them, while ABLE accounts can be established in minutes on the state specific website.
- Qualified Expenses – ABLE accounts have a broad category of qualified expenses but the SNT list is even broader.
- Eligibility – ABLE accounts can only be established if the beneficiary was disabled before age 26. There are no age requirements for an SNT.
As with most significant financial decisions, you should do your homework to determine the best approach and if possible, get the guidance of a financial planning fiduciary.