How Can ABLE Accounts and Special Needs Trusts Work Together?

Q. Our son, Joey, has Down’s Syndrome. We decided it was a good idea to plan in advance for him for when we can no longer care for him ourselves. We have been researching our options and found information on Special Needs Trusts and ABLE Accounts. Do I need both a Special Needs Trust and an ABLE account? If so, how do they work together? Thanks for your help!

A. When you have a child with special needs, it is important to make plans for the child’s future. Children with special needs have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with special needs, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

There are several planning tools available to people with disabilities and their loved ones, and these tools can be used to protect assets and eligibility for means-tested government benefits (SSI and Medicaid). Among these tools are Special Needs Trusts and ABLE accounts.

Special Needs Trusts in the DC Metro Area

Special Needs Trusts (SNTs) are set up to benefit individuals with disabilities.  SNTs can protect a disabled person’s benefits and allow them to maintain their eligibility for government benefits such as Medicaid and SSI.  

Types of Special Needs Trusts

There are a few different types of Special Needs Trusts. The first distinction between them is based on where the money (or other assets) in the trust comes from. If the money comes from anybody other than the disabled person, the trust is a “third-party trust.” On the other hand, if the money is the disabled person’s money, then the trust must be a “first-party trust” or a self-settled trust. This includes assets that the person has a legal right to, even if he or she does not actually own the asset.

Third-party trusts can be either (1) stand-alone revocable or irrevocable trusts or (2) testamentary (typically written into a will but can also be written into a revocable living trust to take effect only upon the grantor’s death). There are also pooled third-party special-needs trusts managed by a nonprofit corporation. First-party trusts must be irrevocable and can be either stand-alone or pooled. Third-party trusts are not subject to Medicaid payback but first-party trusts are. Read more about the different types of special needs trusts here.

What Is an ABLE Account?

Achieving a Better Life Experience Accounts  better known as ABLE accounts — give people with disabilities a way to save money without jeopardizing their qualifications for government disability benefits. These accounts do not replace the important role of Special Needs Trusts, but they do offer an alternative for those managing gifts and earnings under $15,000 a year, as well as those with larger Special Needs Trusts who would like to provide an additional way for the beneficiary to save and spend money without disrupting benefits such as Medicaid and SSI.

ABLE accounts allow people to save money while protecting eligibility for government benefits. Similar to 529 plans, ABLE accounts are managed by the states. Here are some of the federal and state rules for ABLE accounts:

Federal Rules for ABLE Accounts

The basic rules for all ABLE accounts come from the federal ABLE Act. (Read the federal act here: When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Read more about the federal rules for ABLE Accounts.

ABLE Accounts in Virginia

Virginia was the first state to pass ABLE legislation after the federal act was passed by Congress. Here are some details about Virginia’s ABLE account.

Common name: ABLEnow
Account limit: $500,000 ($100,000 to maintain eligibility for SSI)

Read more here.

ABLE Accounts in Maryland

In 2016, Maryland passed the Maryland ABLE Act (2016 HB 431), which provided for the use of ABLE accounts. The MarylandABLE program launched in December 2017. Here are some details.

Common name: MarylandABLE
Statute: Maryland Code, Education, §18–19C–02 through §18–19C–10.
Account limit: $500,000 ($100,000 to maintain eligibility for SSI).

Read more here.

ABLE Accounts in Washington, DC

New DC ABLE helps individuals save, while preserving their SSI and Medicaid.

Common name: DC ABLE
Account limit: $500,000 ($100,000 to maintain eligibility for SSI)

Read more here.

The maximum annual contribution limit in Virginia, Maryland, and DC is $15,000. (If you are working, you can contribute an additional $12,140 or the amount of your annual salary before taxes, whichever is less, for a total annual contribution of $27,140.)

Do I Need Both a Special Needs Trust and an ABLE Account?

ABLE accounts don’t replace estate planning, but they can be a valuable supplement to a comprehensive estate plan, including a Special Needs Trust (SNT). Let’s look at how these tools complement each other.

The Difference Between ABLE and SNT

First, because ABLE accounts are only available to those whose disability was established prior to age 26, these tools will generally be used together for individuals with a disability that began at a young age. Plus the $100,000 cap to maintain SSI eligibility makes ABLE accounts of somewhat limited utility. In these situations, individuals are typically served best by using both an ABLE account and a Special Needs Trust.

Where to Direct Funds

In terms of funding, any significant inheritances or gifts should generally be directed toward the SNT because of the $15,000 total annual contribution limit of the ABLE account. If there was a smaller amount that the individual received under the $15,000 limit, the ABLE account would be a good place for those assets.

The other common funding source of an ABLE account is from accumulated funds from earnings from work and SSI payments for the individual. When the personal checking account is nearing the $2,000 limit, it makes sense to move funds over to the ABLE account to avoid potential suspension of benefits.

How You Use Funds

Once funds are in trust, the trustee (or the charity in the case of a pooled trust) approves distributions for the sole benefit of the beneficiary. One limitation of a Special Needs Trust is the set of strict policies from Social Security, called the POMS, regarding distributions from Special Needs Trusts that pay for room and board benefits, known as “In-Kind Support and Maintenance” (ISM) rules. Essentially, if a Special Needs Trust distributes ISM to the beneficiary, this will reduce the beneficiary’s SSI benefit amount by approximately one-third. To this point, ABLE accounts are much better in helping to pay for room and board expenses, as they are permitted under “qualified disability expense” rules and therefore payments from an ABLE account for room and board do not reduce the beneficiary’s SSI benefit. So, it typically makes sense to use an ABLE account to pay for room and board expenses, and use the SNT to cover significant intermittent expenses, including health-related costs, travel, and education-related expenses.

It’s important to note that SNTs and ABLE accounts can pay for many of the same types of expenses — the distinction being that with an ABLE account, there are additional flexibilities people can take advantage of to pay for common housing expenses on a more frequent basis, including utilities, property taxes, and condo dues.

Another way to determine whether to use the ABLE account or SNT would be the balance of the account. Because the ABLE account has a maximum threshold of $100,000 that is exempt from SSI, it may make sense to use that account with more frequency than the trust account. Note that an ABLE beneficiary can keep more than $100,000 in an ABLE account and still maintain Medicaid benefits, though that is typically not desirable because of the Medicaid payback rule.

How to Leverage the Benefits of All Three Account Structures

Personal checking: Receives SSI payments and work earnings.

Used for paying rent/mortgage, meals/grocery, utilities, and for cash needs.

ABLE account: Receives funds when checking account nears its $2,000 limit and receives gifts or personal payments lower than the $15,000 annual ABLE account limit.

Pays for any qualifying disability expense, including transportation, assistive technology and employment support, and housing expenses (including utilities, condo dues, etc.).

First-party SNT: Receives larger gifts and inheritances that come directly to the beneficiary. Pays for larger expenses, including health-related expenses, vacations, insurance, etc.

Third-party SNT: As a general rule, whenever possible, money that is being gifted or distributed to a disabled beneficiary should not go directly to the beneficiary, but rather into a third-party Special Needs Trust, in order to avoid the Medicaid payback rule upon the death of the beneficiary. This trust should also be used for major expenses, but generally only after the funds in any first-party Special Needs Trust are used up, to avoid or at least minimize Medicaid payback.

Plan in Advance for Your Special Needs Loved Ones

Again, it’s very important to note that the presence of ABLE accounts does not replace estate and trust planning for your loved ones. Be sure to consult with an experienced Elder Law and special needs planning attorney who specializes in these tools and their uses. For help determining if an ABLE account, SNT, or both are fitting solutions for you or a loved one, please reach out to the Farr Law Firm.

When it comes to special needs planning, estate planning, and retirement planning, the time to start planning is now. The attorneys at the Farr Law Firm can guide you through this process. Please contact us to make an appointment for an initial consultation:

Special Needs Attorney Fairfax: 703-691-1888

Special Needs Attorney Fredericksburg: 540-479-1435

Special Needs Attorney Rockville: 301-519-8041

Special Needs Attorney DC: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.