Articles

Parent Tips: ABLE Accounts vs Special Needs Trusts

By Monty Knittle, Harbor Investment Advisory, LLC

The Achieving a Better Life Experience (ABLE) Act was signed into law December 2014. The passage of the Federal law was a huge step forward, but there is still more work to be done at the Federal and State level before an individual can open an ABLE account.
piggy bankThe Department of Treasury must develop regulations by June 2015 that will guide states in regards to the requirements needed to open an ABLE account and the definition of qualified disability expenses. In addition a Task Force has been set up in Maryland to determine the structure of the program and whether it should be State-sponsored or privately run. Furthermore, it will determine the staffing and funding needs of the program; identify potential sources of start-up funding prior to the program becoming self-supporting; and address other implementation issues. The Task Force must submit a report of its findings and recommendations by December 1, 2015, including legislation (if needed) to be introduced in the 2016 legislative session to implement the recommendations. The bottom line is, it will be some time yet before Maryland residents can open an ABLE Account. In the mean time, how do I know what savings option – Special Needs Trust or ABLE Accounts - is the right one for me or my loved one?


“There are still some unknowns as the legislation is evolving, but it would appear that ABLE accounts will be a tool in the tool chest. For some families, ABLE accounts will be a very good option (certainly better than nothing).  For other families, ABLE accounts may be a piece of the planning process.  And for other families, ABLE accounts are not likely to have utility.”  –  Monty KnittleHarbor Investment Advisory, LLC,

ABLE Accounts
ABLE Accounts offer individuals with disabilities and their families a tax €deferred savings vehicle to save for their future needs, much like the current 529 Education Savings Plans that help families save for college, without losing benefits provided through private insurances, the Medicaid program, the Supplemental Security Income program, the beneficiary's employment, and other sources.

Special Needs Trusts
There are different types of trusts and the difference between them typically is dependent on how the trust is funded.

Self Settled Trusts
A trust that is funded by the individual will likely have to be a first person (Self Settled) trust. First party trusts (and ABLE accounts) have a payback provision, which means upon the passing of the individual, if there are any residual funds, the state would have first claim on those assets (to repay any Medicaid related costs incurred during the individual’s life).   

Third Party Trusts
A trust funded by someone other than the individual could be established as a third party trust. Third party trusts do NOT have a payback provision. For estate planning purposes, most people prefer to set up a third party trust so that they can control where any residual funds could be directed. Special Needs Trusts investment accounts can be set up and held with just about any financial institution and the investments can be tailored to the individual’s unique goals and needs. 

Pooled Trusts
Special Needs Pooled Trusts are slightly different in that they are held and administered by the Pooled Trust (i.e. The First Maryland Disability Trust). Laws permit a non-profit organization to create a trust which can bring together (or “pool”) the assets of many individuals with disabilities in a way that protects each one’s assets and income from being counted in determining eligibility for certain public benefits, such as SSI or Medical Assistance. However, we will not be using Special Needs Pooled Trusts in our comparison.


ABLE Accounts vs Special Needs Trusts comparison table
*payback provision means that upon the passing of the individual, the state would have first claim on any residual funds in the account to repay any Medicaid related costs incurred during the individuals life. 


Additional Resources

The ABLE Act – A New Tool for Special Needs Planning

Meet the 529 ABLE account: A new way to save for disabled beneficiaries

Are Tax-Free ABLE Accounts The Right Financial Solution For People With Disabilities

How New ABLE Accounts Will Help Americans With Disabilities

The Pros and Cons of ABLE Accounts

10 Things to Know About the ABLE Act

ABLE Act Overview from the National Down Syndrome Society

ABLE Act Updates from The Arc 

Detailed information on ABLE Accounts from The Arc

ABLE Accounts Offer A New Choice For The Disabled

Maryland ABLE Overview from the Maryland Developmental Disabilities Council


© 2015 Pathfinders for Autism

Attached file:
ABLE vs Special Needs Trusts.pdf

Back to top