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

Special Needs Trust vs ABLE Account: Which is right for you?  

Special Needs Trust (or SNT) and ABLE accounts allow people to save money tax-free in case of disabilities. By saving money with one of the mentioned programs, you can ensure that a disabled person is eligible for public offers. 

There are some significant discrepancies between ABLE accounts and SNTs protecting resources. For example, they have different annual limits on savings amounts and different rules for savings purposes. 

Let’s dig deeper and see which option is best for you!

Supplemental Needs Trusts (SNTs)

Sometimes when you’re in a financial pitch, you can take a short-term loan to cover your needs. Many people say “I need 300 dollars now online direct lender only deposit today”, but that’s not the case for a disabled person since you need to provide income proof without losing access to the rest of the public benefits. SNT is a fiduciary relationship, where an entity acts on behalf of another person, managing assets. 

SNT is the beneficiary for both parties due to the following reasons:

• The beneficiary can receive financial aid without proving eligibility for income-restricted programs
• The party in charge of the trust has the reassurance that the proceeds will go to expenses they stipulate 

However, you must remember that money obtained through SNT, has a limited range of expenses they can be used for. Let’s say, you cannot use the funds to cover the basic living expenses, but you may cover medical expenses, payments for caretakers, and transportation costs.

Achieving a Better Life Experience (ABLE) Accounts

The ABLE account is another option for tax-free savings for disabled individuals. ABLE is similar to SNT in many ways: for example, it also doesn’t affect eligibility for public benefits. 

On the other hand, ABLE accounts are much newer financial products in contrast to SNTs. They emerged on the market in 2014, as a way of giving more disabled people access to the benefits that, up until then, were restricted to those who held SNTs.

The Main Differences

The three main differences between SNTs and ABLE accounts are eligibility, the allowed expenses, and the limits on the end goal for saving money. Let’s take it one step at a time.

Eligibility

First-party SNTs, which are funded with the recipient’s own assets, must be formed before the beneficiary turns 65 and meets the Social Security disability requirements. There are no age restrictions for setting up third-party trusts that are financed by resources owned by parties other than the recipient. 

In order to qualify for an ABLE account, a person must have a handicap that began before the age of 26 and meet Social Security’s requirements for substantial functional impairments resulting from the disability.

Allowed Expenses

The financial agencies were certainly not among the most trustworthy government institutions in the USA in 2022. Today, people feel more determined to avoid SNTs or ABLE accounts as they are afraid to lose public benefits. 

That’s the moment for financial advisors to step in and take the lead in repairing these relationships. By finding a solution to eliminate disadvantages (such as an expensive plan for SNTs), they can gain loyalty among new customers and prove that by creating trust disabled individuals won’t lose the rest of their compensation. 

SNTs are intended to cover “extras” like holidays, pets, entertainment, home furnishings, assistive technology, treatments not covered by Medicaid, and other comforts of life. These are expenses that public assistance cannot cover. 

There is a wider range of permissible costs with ABLE accounts. Anything that aids a person with a handicap in enhancing their quality of life, independence, or health falls under this category. Basic living expenses, as well as expenses for education, food, job, transportation, technology, support services, and other things, can all be included in a plan.

Savings Limits

The cost of setting up SNTs is one of their drawbacks. The trust must normally be established by hiring an attorney. On the contrary, opening an ABLE account is quick and simple, and it may be done online through the state’s website. There is no need for legal or financial advice. 

Both contribution and amount limits apply to ABLE accounts. There is a cap on the annual contribution. Under the same tax statute that governs 529 plans, this threshold is determined nationally and its approximate amount was $16,000 in 2022.

Other Differences

Compared to the fundamental variations described earlier, here’s the list of other features, that play differently for SNTs and ABLE accounts:

• Management: money in SNTs is often harder to get your hands on. Accessing the money in ABLE accounts is simple, and many programs include debit cards that let you make purchases right from the account
• Tax: the amount kept in SNTs comes with taxes, while ABLE accounts are tax-free
• Liability: money used in SNTs doesn’t have to repay the Medicaid costs after a person dies; on the contrary, money coming from ABLE accounts, can be used to reimburse the expenses the Medicaid agency has provided for an individual. 

In addition, the money kept on SNTs is destined to cover “extra expenses” (the ones not covered by public benefits). But you may use the money from the ABLE account to solve much more complicated problems (such as the basic costs of living, education, food, employment, and transportation).

Summary of the Main Points

Every family has unique circumstances, so it’s essential to get expert advice when making financial decisions. First of all, think that you are not forced to pick between an ABLE account and an SNT. In fact, you can own both of them. 

The ABLE accounts cover a broader range of expenses, including living costs, food, and transportation expenses. The SNTs, in turn, may have more demands to create trust, and yet, they don’t affect the other public benefits you might be eligible for. 

You need to take into account a variety of factors, like tax procedures and Medicaid payback when choosing the best option. Remember to apply for not something your friend or relative is using, but find a soft spot for your individual financial needs.