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When planning for the future of a loved one with disabilities, ensuring financial security without jeopardizing eligibility for essential government benefits is of the utmost importance. Two key tools to consider are Special Needs Trusts (SNTs) and ABLE accounts. While both serve to protect and manage funds for individuals with disabilities, their structures, benefits, and limitations differ.
Unique Estate Law has many years of experience creating customized estate plans for families with unique needs and circumstances. Here’s a comparative guide we’ve put together to help you make an informed decision.
What is a Special Needs Trust?
A Special Needs Trust is a legal arrangement where funds are managed for the benefit of an individual with disabilities without disqualifying them from means-tested benefits. A trustee manages the assets to pay for expenses not covered by public benefits, such as education, transportation, or recreational activities.
Types of SNTs:
- First-Party SNT: Funded with the beneficiary’s own assets, such as an inheritance or settlement.
- Third-Party SNT: Created and funded by someone other than the beneficiary, often as part of a family’s estate plan. In Minnesota, these are referred to as Supplemental Needs Trusts.
Key Features:
- Unlimited Contributions: No limit to the amount of assets that can be placed in the trust.
- Asset Protection: Funds in the trust don’t count toward SSI or Medicaid asset limits.
- Customizable: Can address specific needs and preferences of the beneficiary.
Pros:
- Professional management by a trustee.
- No impact on government benefit eligibility if structured correctly.
- Flexible use of funds for a broad range of needs.
Cons:
- Requires legal setup, which can be expensive.
- Fees for the trustee and other administrative costs can be costly.
- First-Party SNTs will require Medicaid reimbursement when the beneficiary dies.
What is an ABLE Account?
An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings account that is specifically set up for individuals with disabilities. It enables them to save and invest funds while preserving eligibility for means-tested government programs. To be eligible, the beneficiary’s disability must have been diagnosed before the age of 26.
Key Features:
- Annual Contribution Limit: $17,000 per year (2024).
- Tax Advantages: Earnings grow tax-free if used for qualified disability expenses.
- Simplicity: Easy to set up and manage compared to an SNT.
Pros:
- Lower cost to establish and maintain.
- Funds can be used for a wide range of qualified expenses, including housing, education, and transportation.
- Allows the account holder more direct control over funds.
Cons:
- Balance over $100,000 may temporarily suspend SSI benefits.
- Contribution and total account balance limits can restrict planning options.
- Medicaid reimbursement required after the account holder’s death.
How Do I Decide Which Option is Best for My Situation?
Consider a Special Needs Trust if:
- You want to safeguard significant assets.
- You need professional management for complex financial matters.
- The beneficiary is older than 26 or requires a highly tailored approach.
Consider an ABLE Account if:
- You’re looking for a simple, cost-effective savings solution.
- You need tax advantages for smaller amounts of savings.
- The beneficiary meets the age and disability onset criteria.
Contact a Minneapolis Estate Planning Attorney with Questions
We get it. You want to ensure long-term financial security and flexibility for your loved one with disabilities. But the options are complicated and can be challenging to understand. Contact a trusted Minneapolis estate planning attorney —they will create a customized strategy that is specifically crafted for your family’s unique needs.