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When special needs individuals are dependent on a combination of public benefits and financial support from family members or caregivers, their parents or guardians are often encouraged to open ABLE accounts or special needs trusts (SNTs).

Both of these financial tools can be invaluable in creating a supportive financial structure to serve a disabled individual’s needs both now and in the future. However, although there are strict rules on how a special needs trust and ABLE account can be funded and utilized, this does not eliminate the need for financial planning to ensure these accounts are properly managed.

This is especially pertinent when it comes to protecting the individual’s eligibility for public benefits. Given the complex rules and relationship between these specialized accounts, it’s important to understand best practices for using these accounts together to maximize their overall value.

The Limitations of ABLE Accounts

Although ABLE accounts offer a number of valuable benefits to disabled individuals, they also come with key limitations that can be addressed through the creation of a special needs trust.

There are tight restrictions when it comes to maintaining an ABLE account. These limitations include:

  • A $100,000 account limit to maintain benefits.
  • A maximum disability onset age of 26 years. (This changes to 46 as of January 1, 2026 as part of the Secure 2.0 Act)
  • An annual contribution limit of $15,000 from all donors combined.
  • A resource limit of $2,000 for Medicaid and supplemental security income (SSI) eligibility. This limit applies to the total value of non-exempt assets, including checking accounts.
  • A reimbursement of Medicaid benefits that may be made upon beneficiary’s passing, using their remaining funds. Note that some states such as California, Michigan, Pennsylvania, and Oregon may continue to shield accounts from Medicaid clawback.

Given these tight limitations, it’s no surprise that many special needs individuals are unable to have their needs met through ABLE accounts alone. That’s why an SNT can offer important flexibility and value.

How Special Needs Trusts Differ From ABLE Accounts

Although special needs trusts and ABLE accounts serve similar populations, the rules and functions of these accounts differ greatly.

For example, in allowing large contributions to the account, SNTs offer much-needed flexibility. SNTs also allow funds to be used for a wider range of purposes, including vacations and other large expenses—although an SNT can’t be used for food and shelter expenses without those funds being considered income. Special Needs Trusts also can be invested in whatever investments the trustee sees fit as long as it complies with the trust document.  

ABLE accounts, on the other hand, have a more limited selection of investment options.

Beneficiaries often have less than 10 choices to pick from when directing balances in an ABLE account to short-term fixed income or money market funds. These accounts are also not available through an advisor. Instead, they are available by the states who sponsor them.

Account owners are able to open an ABLE account in any state, regardless of residence ABLE account owners are only allowed to change their investment options up to two times a year.

In terms of beneficiary designations, unlike ABLE accounts, a third-party SNT balance can be left to beneficiaries—such as siblings or other family members—after the special needs individual has passed. ABLE accounts, upon death of the account owner, must be used to reimburse the government for any Medicaid benefits. Remaining funds must then pass through probate in order to be transferred to the beneficiary’s heirs, 

Last but not least, third-party SNT offer protection of means-tested benefits and exemption from Medicaid reimbursements upon the beneficiary’s passing. Note that this does not apply to first-party SNTs, which are not exempt from Medicaid reimbursements.

How to Harmonize the Use of a Special needs trust and ABLE Account

To maximize the value of these accounts and preserve eligibility for public benefits, it’s recommended that trustees and beneficiaries work with a financial planner to determine which accounts to establish, and for which purposes those accounts would be set up.

Food and shelter costs, for example, must come out of beneficiary funds or an ABLE account to be considered exempt assets. This means your ABLE account is also ideal for paying property taxes on real estate. Other methods of payment could be considered non-cash forms of compensation, which would count as resources under SSI—thus reducing or restricting the SSI benefits the beneficiary can claim.

ABLE accounts are also generally the best source of funding when paying for any qualified disability expense. These expenses include anything related to the account owner’s disability that helps maintain their health, independence, and overall quality of life. Non-qualifying expenses are any that do not meet IRS criteria. Typically, these should be paid for with SSI income whenever possible. Whatever costs remain after SSI and ABLE accounts have been used can then be paid for from the ABLE account and SSI income, spending down countable resources that would otherwise be means-tested.

It’s important to keep in mind that trusts are designed to supplement public benefits rather than replace them. A financial planner can help trustees understand how to properly categorize expenses and pay for them through the best funding option.

Plan Your Account Strategy to Protect Public Benefits

Public benefits provide for valuable resources that most special needs individuals need to survive and thrive. The loss of public benefits could cause a special needs consumer to outlive privately held assets.

By using a special needs trust and ABLE account in tandem, special needs individuals can protect their eligibility for SSI benefits and secure valuable resources that can contribute to future financial security for a special needs consumer. 

Don’t let poor trust management cost you or your loved one access to public benefits. Talk to a financial planner to make sure your trusts are harmonized—both with each other and with the benefits you’re eligible to receive. Contact us today to find out how we can help.

Jeremy Lau

Jeremy L. Lau serves as Chief Executive Officer. He teaches the Investment Management course for California State University, Fullerton’s Trustee Certification Program and frequently speaks on fiduciary investing to attorneys and fiduciaries across various associations. Before joining Prudent Investors, he worked as an Executive Director in investment banking in Tokyo and Hong Kong for Deutsche Bank AG and UBS AG in structured credit and convertible bonds. He graduated in Accounting (with Honors distinction) from Brigham Young University and has earned the right to use the Chartered Financial Analyst (CFA®) and Certified Financial Planner (CFP®) designations.