Special Needs Trust vs. ABLE Accounts

If you have a loved one with special needs, you are used to navigating an alphabet soup of acronyms and wading through the overwhelming amount of information thrown at you from healthcare providers and bureaucrats. 

So it will probably not surprise you that there are a whole new set of acronyms and regulations you must work your way through if you want to enhance your loved one’s financial security. 

In Mississippi, two key tools available for individuals with disabilities are Special Needs Trusts (SNTs) and Achieving a Better Life Experience (ABLE) accounts. 

While both serve the purpose of enhancing the quality of life and financial security of individuals with disabilities, they operate differently and can be used to meet different needs. In some instances, it may be beneficial to create both. 

The Palmer & Slay team is ready to help you figure out whether an SNT or an ABLE account would work best for your loved one — or whether you might want to set up both types of accounts. 

What is a Special Needs Trust (SNT)? 

A Special Needs Trust is a legal instrument designed to hold and manage assets on behalf of individuals with disabilities without jeopardizing their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. 

The type of funds you plan to use to fund a special needs trust will dictate what sort of SNT you can establish. There are two main types of SNTs: first-party and third-party trusts.

  • First-Party Special Needs Trusts – First-party trusts are created with the disabled individual’s assets, such as an inheritance or a legal settlement. These trusts are subject to payback provisions, requiring any funds remaining after your loved one’s death be used to reimburse the government for benefits it provided. 
  • Third-Party Special Needs Trusts – Established by family members or friends for the benefit of the person with special needs, these trusts do not have payback provisions. This means any assets remaining in the trust after your loved one’s death may be distributed to other family members or charities.

There is no limit on the amount of money that can be held in an SNT since the beneficiary does not own the assets held in trust. And the money in a SNT can be used to improve the beneficiary’s life in a wide variety of ways. Virtually an expenditure that improves the beneficiary’s life is acceptable, but the funds should not be used to pay for housing or food since that can impact SSI benefits. 

What is an ABLE Account?

An Achieving a Better Life Experience (ABLE) account is a way for someone with special needs to save and invest money without risking eligibility for means-tested government benefits.

In Mississippi, the maximum account balance is $450,000, and contributions can be made by the account beneficiary or family members and friends. However, yearly contributions to an ABLE account may not exceed the annual gift tax exemption (which is $18,000 in 2024). So it would take many years to max out the account. 

The money in an ABLE account can be used to pay for any “qualified disability expense” (QDE) without impacting one’s eligibility for other benefits. This includes housing and food.

Which is Better, a SNT or an ABLE Account? 

Figuring out whether your loved one would be better served by an SNT or an ABLE account depends on a variety of factors. 

  • How much money will be in the account?
  • Where is the money to create the account coming from?
  • Will there be more money coming in each year? 
  • What kind of financial support does your loved one need? 
  • Does your loved one have the capacity to make some financial decisions on his or her own behalf? 

The Palmer & Slay team is ready to help you figure out the answer to these questions, and work with you to set up the type of financial account that will best meet your loved one’s needs. Depending on the circumstances, it may be wise to set up an ABLE account and a SNT — or multiple SNTs. 

Preserving Your Wealth. Protecting Your Loved Ones.

While both SNTs and ABLE accounts are important resources for individuals with disabilities and their families, they have different features and limitations. Palmer & Slay’s experienced attorneys can help you determine which tool (or tools) will work best for your family. Please contact us today to schedule an initial consultation.