Will ABLE Act Accounts Replace Special Needs Trusts?

Legislation signed into law by President Barack Obama in late 2014 to further protect the assets of disabled individuals while maintaining their qualification for means-tested benefits such as Medicaid and Supplemental Security Income (SSI) is making its way through state legislatures this year in anticipation of full implementation throughout the country in 2016 and 2017.

The Achieving a Better Life Experience, or ABLE, Act, which was signed late last year, sets the stage for people with disabilities to open special, tax-free accounts where they can save up to $100,000 without jeopardizing eligibility for Medicaid, SSI and other government means-tested programs. Before the accounts can become available, however, lawmakers in each state must establish and pass into law legislation for their individual states. Advocates say that to date, more than half of states have taken steps to create such legislation.

As the establishment of these tax-free saving accounts begin to take root in each state, persons with disabilities and their families are weighing their options and, in particular, beginning to consider what impact, if any, this new option plays in relation to their overall financial assets, their healthcare benefits and their long-term care.

The new ABLE Act allows for the establishment of tax advantaged savings accounts that are designed to provide some of the same benefits as a Third-Party Special Needs Trust – namely protecting an individual’s eligibility for means-tested public benefits programs such as Medicaid and SSI. These programs help individuals pay for medical and many other disability related living expenses. In addition to protecting eligibility for public health benefits, these new accounts – like Third-Party Special Needs Trusts – also cover expenses related to the designated beneficiary as a result of living a life with disabilities including education, housing, transportation, employment training and support, assistive technology, personal support services and health care expenses.

While ABLE accounts and Third-Party Special Needs Trusts seem to hold many of the same basic benefits, there are, however, several key differentiating factors that must be considered when weighing the options for these benefits:


The ABLE Act
The ABLE Act allows for the establishment of tax-free saving accounts for individuals who have qualifying disabilities; however, those disabilities must have been acquired before the age of 26. There is no such age restriction for Third-Party Special Needs Trusts. In addition, the annual contribution limit to an ABLE account is $14,000, and once the account reaches a total of $100,000, eligibility for SSI benefits will be suspended. Medicaid benefits, on the other hand, will not be impacted by the $100,000 cap. The income earned in an ABLE account is not taxed, and contributions made to the account are not tax deductible. An additional consideration to such accounts is the mandatory payback provision that requires any funds remaining in the ABLE account upon the death of the beneficiary to be reimbursed to any state that provided Medicaid benefits to the beneficiary during her/his lifetime.

Third-Party Special Needs Trusts
A Third-Party Special Needs Trust is a specific type of trust that offers the option of keeping someone eligible for public benefit programs. Third-Party Special Needs Trusts and Third-Party Pooled Special Needs Trusts are established with funds that belong to someone else such as one or more family members. Third-Party Pooled Special Needs Trusts can be a more economical option as the cost of creating the Trust is less. The beneficiary can be an individual of any age who has a qualifying disability. Third-Party Trusts have no contribution limits, and there is no payback provision upon the death of the beneficiary; in fact, funds remaining in the trust can go to a second beneficiary.


Depending on an individual and his or her family’s financial circumstances, the new ABLE accounts may be a viable and appropriate singular option for managing medical and other supplement care, especially for those with minimal assets. In many cases, however, consultants are encouraging clients to consider a multipronged approach that includes establishing ABLE accounts as supplements to well-established estate plans that include Third-Party Special Needs Trusts.

The decision to set up or maintain a Third-Party Special Needs Trust should be carefully considered and based on an individual’s unique circumstances.

For assistance or to learn more about Third-Party Special Needs Trusts and the ABLE Act, contact The Centers at (877) 766-5331 or online here.

Our specialized teams can help you understand the law, the options it affords you and the benefits of establishing or maintaining an existing Third-Party Special Needs Trust.