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What is the Difference Between Special Needs Trust and Able Accounts for Disabled Adults and Their Families

 Posted on December 19, 2022 in Estate Planning


What is a Special Needs Trust?

A third-party special needs trust is a commonly used tool that helps provide for disabled loved ones and really should be included in every person’s will or trust. A special needs trust provides financial support for a designated beneficiary that is disabled or has special needs with the bonus that the income from the trust will not impact the beneficiary’s eligibility for government assistance programs (such as Medicare or Social Security)

Funds from a special needs trust are used for expenses such as medical bills, payments for treatments or caretakers, and transportation costs. Generally, government assistance programs are run on an income contingency and as a result, if a disabled person makes over a certain amount of money, they can be disqualified from receiving those benefits. However, a special needs trust avoids this issue completely.

A special needs trust will not only finically protect a loved one that is disabled at the time the will or trust is executed, but it also is effective if a loved one, who was not disabled at the time it was executed, later becomes disabled.

Who Can Create a Special Needs Trust?

There are no limitations on who may create or contribute to a special needs trust, nor is there a limit to the number of trusts that may be created for a single special needs or disabled person.

How is a Beneficiary of a Special Needs Trust Able to Spend Their Income from the Trust?

So long as there is no explicit language to the contrary, assets, and funds in a special needs fund may be used for anything. This typically includes anything that may better the standard of living or quality of life of the disabled beneficiary such as therapy, caregivers, household bills, clothing, furniture, and everyday household items.

What is an ABLE Account?

An ABLE account is another great option for those with family members with special needs to ensure that they are provided financially while protecting their eligibility for government benefit programs

ABLE stands for the Achieving a Better Life Experience Act, which was passed by Congress in 2014. The Act provides a way for a person with disabilities to hold tax-free savings account used to pay for expenses related to their disability. Like a special needs trust, funds in an ABLE account (so long as it is under the maximum allowed amount) are untaxed and the funds do not count towards the disabled person’s “income” for governmental assistance programs. According to the IRS, a balance must not exceed $100,000 total to not be included as “income.” 

For tax purposes, the funds in an ABLE account are considered a “gift” and are therefore non-taxable so long as they stay under the maximum amount per year allowed by the IRS. As of 2022, there is no limit to how many people can contribute money to the account. However, it should be noted that for the gifted money to not be taxed, the amount given to the account each year must stay under the IRS’s gift tax exclusion amount. In 2022 that amount was set as $16,000 and the IRS states that amount will be $17,000 in 2023 (see the IRS announcement here).

Further, contributions made to an ABLE account may be tax deductible. In Illinois, contributions to an ABLE account up to $10,000 are tax deductible for an individual. If filing jointly, the amount that is tax deductible depends on the federal annual limit, which, as stated above, is $16,000 in 2022 and $17,000 in 2023

What Happens to the Remaining Funds of an ABLE Account When the Disabled Account Holder Passes?

When a disabled person that holds the ABLE account passes, the funds left in the account are taken by the state (or states) that the person received Medicaid services from, if there are any, as reimbursement for those services

Who is Eligible to have an ABLE Account?

Under the terms of the Act, a person is eligible for an ABLE account if their disability was onset before they turned 26 years old and they are also receiving social security or disability benefits. It is possible for a person who meets the age requirement but does not receive the required governmental benefits to hold an ABLE account, so long as they meet Social Security's criteria to be considered significantly limited and they can obtain a letter from a licensed doctor certifying their disability. Each person is limited to one ABLE account. See the Social Security Administration’s website for more information on the definition and criteria for disability evaluation here.

What Expenses Can Be Paid with an ABLE Account?

Under the terms of the Act, expenses paid with an ABLE account must be "Qualified Disability Expenses," also called QDEs. QDEs generally include any expense related to the disability and improving the quality of life for the disabled person. For example, common QDEs include home, rent, and utility payments; transportation expenses like a vehicle, costs associated with maintaining that vehicle, insurance, registration, and taxi, bus, or ride share services used to transport the disabled person; expenses related to work or education; health and wellness expenses; food; financial services such as assistance with managing accounts; assistive technology that helps the disabled person’s quality of life; and funeral expenses at the end of their life. For a full list of QDEs and more details and definitions of the ABLE Act see the Social Security Administration’s website here.

What is the difference between a Special Needs Trust and an ABLE Account?

The purpose of special needs trusts and ABLE accounts are the same. They both seek to financially provide for disabled loved ones without impacting the disabled person’s eligibility for government assistance programs and avoiding unnecessary taxes on money used to assist the disabled person. However, there are several differences between the two

Generally, ABLE accounts have a simpler process to create and manage. However, they come with some major disadvantages including the limits that are placed on the amount of money one can contribute each year. Special needs trusts, on the other hand, are slightly more time-consuming to set up, but they have no contribution limits. Having a knowledgeable and experienced attorney to assist with preparing a special needs trust makes the process much easier and quicker

Additionally, there are different rules as to how funds can be spent. An ABLE account has specific criteria, while a special needs trust is much broader and the terms can be set by the creator of the trust, rather than the government

The final difference is what happens to account funds after the disabled person passes. As mentioned above, the remaining funds in an ABLE account are used by the state to reimburse public assistance benefits costs. While the remainder of the funds in the special needs trust is distributed according to the terms of the trust, which is typically given to other family members or back to the estate of the person that created the special needs trust


Special needs trusts are created to ensure the quality of life we desire for the people we love. These needs are crucial to outline in your will or trust and you should discuss your options with an attorney today. Hiring effective and experienced estate planning counsel is critical to ensuring your goals are met and your estate planning is done effectively. Gateville Law Firm concentrates on estate planning. Our estate planning lawyers utilize asset protection strategies to protect the economic security and peace of mind of our clients. We are eager to assist you and your family with their estate plans. Attorney Sean Robertson is available at 630-780-1034 or available through an online contact form.


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