Deciding between an Able Account and a Special Needs Trust can feel like a big task. Many families face this choice, so you’re not alone. It’s about protecting benefits while saving for the future, which is so important.
In this post, we’ll walk through how each option works, their pros and cons, and help you figure out what might work best for your needs. Let’s dive in!
Overview of ABLE Accounts
ABLE accounts help people with disabilities save money without losing government benefits. They allow funds to grow tax-free for qualifying expenses.
Key features and benefits of ABLE Accounts
ABLE Accounts let people with disabilities save money without risking government benefits like SSI or Medicaid. Savings in these accounts grow tax-free, which helps the balance increase faster over time.
We can use the funds for many needs, such as housing, education, transportation, and healthcare. Contributions come from different sources – family members, friends, or even ourselves.
Annual contributions are capped at $19,000 as of 2025. These accounts give more control compared to Special Needs Trusts while protecting eligibility for public benefits.
Eligibility and contribution limits
To qualify for an ABLE account, the individual must have a disability diagnosed before age 26. They can also be receiving benefits like Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI).
New Jersey residents meeting these criteria are eligible to set up this type of savings account without losing government benefits.
The annual contribution limit for an ABLE account is $19,000 in 2025. If the beneficiary works, they may add extra funds based on their income, but it cannot exceed federal limits.
Unlike Special Needs Trusts, which have no annual cap, ABLE accounts follow strict contribution rules. These funds grow tax-free and help pay for disability-related expenses while protecting SSI and Medicaid eligibility.
Overview of Special Needs Trusts
Special Needs Trusts help protect a person’s eligibility for government benefits. They allow families to set aside funds for care and support without risking programs like Medicaid or SSI.
Key features and benefits
ABLE Accounts let individuals with disabilities save money without losing government benefits like SSI or Medicaid. The account balance can grow tax-free if used for qualified disability expenses such as health care, housing, or assistive technology.
Each year, contributions are capped at $17,000 under the annual gift tax exclusion.
Special Needs Trusts (SNTs) hold assets and protect eligibility for means-tested benefits like SSI. A trustee manages these funds to meet the beneficiary’s needs while preserving their public aid.
SNTs can hold more types of assets than ABLE Accounts and offer greater flexibility in funding options – from gifts by family members to inheritances or settlements.
Flexibility and funding options
Special Needs Trusts allow more choices for funding. We can add money from third-party gifts, life insurance, or even estate plans. This makes planning easier for families with specific needs.
We have options to design trusts based on situations. Some focus only on protecting SSI benefits, while others handle larger assets. Next, we’ll look at the types of Special Needs Trusts available.
Exploring Different Types of Special Needs Trusts
Special Needs Trusts help safeguard funds for people with disabilities. They ensure care and support without risking government benefits.
- First-Party Special Needs Trust
This trust uses the disabled person’s money. It can include lawsuit awards, savings, or inheritance. The funds must adhere to strict rules to avoid impacting Medicaid or SSI. - Third-Party Special Needs Trust
This trust holds money from parents, relatives, or friends. The funds are not owned by the disabled individual. Once the person passes away, any remaining money can go to other family members. - Pooled Special Needs Trust
Nonprofit organizations oversee this type of trust. It combines assets from various people into one fund while maintaining separate individual accounts. This may reduce fees and offer professional management. - Testamentary Special Needs Trust
This trust is established in a will and begins functioning after the creator’s passing. Parents often use it to allocate assets for their child with special needs while preserving eligibility for benefits. - Supplemental Needs Trust
These trusts cover additional expenses like education, recreation, or therapy that government programs don’t cover, enhancing quality of life while keeping aid intact.
Each option has distinct features for different situations. We assist families in selecting the most suitable choice!
Funding a Special Needs Trust: Your Options
Funding a special needs trust can seem overwhelming. We want to help make the process clear and manageable.
- Personal Savings
You can use your own savings to fund the trust. This is a straightforward option many families choose. - Life Insurance Policies
Purchasing a life insurance policy is another popular method. The payout can go directly into the trust upon your passing. - Inheritance or Gifts
Trusts can also be funded with money or property given by grandparents, relatives, or close friends. - Real Estate
Adding property you already own to the trust is possible. This could include homes, land, or other valuable real estate assets. - Investment Accounts
Trust funds often come from stocks, bonds, or other investments that grow over time. - Settlements from Lawsuits
If the person with disabilities receives money through a lawsuit settlement, it may be added to the trust. - Retirement Accounts
You might designate your 401(k) or IRA as funding for the trust after you pass away. - Third-Party Contributions
Friends and family members are allowed to contribute money into some types of special needs trusts if they wish. - Pooled Trusts for Small Amounts
A pooled trust collects smaller contributions from many individuals to manage funds together but still benefits each individual separately. - Naming the Trust in Wills
Include specific terms in your will so funds automatically transfer into the trust when needed.
What Is a Special Needs Trust? All You Need to Know
A special needs trust helps individuals with disabilities keep their government benefits. It holds money or assets for their care without risking Medicaid or Supplemental Security Income (SSI) eligibility.
The funds can pay for medical costs, education, and personal items not covered by public assistance.
These trusts come in different forms. A first-party trust uses the individual’s own money, like a personal injury award. Third-party trusts are funded by family members or friends.
We can help set up these legal arrangements to protect assets while ensuring ongoing support for those with disabilities in New Jersey.
Who Qualifies for a Special Needs Trust in New Jersey?
Not everyone qualifies for a special needs trust in New Jersey. These trusts are created to help people with disabilities who rely on means-tested government benefits like Medicaid or Supplemental Security Income (SSI).
The funds in the trust allow them to pay for extra expenses without losing their benefits.
To qualify, the individual must have a disability recognized by the Social Security Administration. They also need financial resources that exceed the program’s limits but not enough to cover all care costs.
We often recommend consulting a special needs planning attorney to determine specific eligibility based on unique circumstances.
Comparing ABLE Accounts and Special Needs Trusts
ABLE accounts and Special Needs Trusts serve different purposes for individuals with disabilities. Understanding their features can help you choose the right path for your needs.
Differences in use of funds and tax advantages
Funds in an ABLE account can pay for qualified disability expenses. These include housing, education, health care, and job training. The money grows tax-free, and withdrawals are not taxed if used for these approved costs.
Special Needs Trusts protect assets without impacting government benefits like Medicaid or SSI. They offer more flexibility, allowing us to cover non-qualified expenses such as vacations or entertainment.
However, trust funds may face taxes depending on income earned within the trust. Choosing the right option depends on our specific needs and financial goals.
Which option is best for specific needs
An ABLE account works well for smaller savings and day-to-day expenses. It offers tax-free growth and allows contributions up to the annual limit without risking benefits like Supplemental Security Income (SSI).
This type of account is great for covering costs such as education, housing, or healthcare.
A Special Needs Trust may suit larger assets or more complex needs. It protects money while keeping eligibility for Medicaid or SSI intact. Unlike an ABLE account, there’s no contribution cap but requires a trustee to manage funds.
This trust is better for long-term planning and significant inheritances. We recommend speaking with a lawyer to decide based on your situation in New Jersey.
Legal and Financial Planning for Special Needs
Planning for special needs requires careful thought. We can help you protect benefits while securing the future.
Understanding Guardianship and Conservatorship: A Comprehensive Guide
Guardianship and conservatorship help protect individuals who cannot make their own decisions. Guardians make personal and medical choices, while conservators manage money or assets.
In New Jersey, these roles require a legal process to ensure the person’s best interests are met. Families often need guidance navigating this system, especially when dealing with special needs planning or elder care.
We see many clients worried about losing control over loved ones’ care. Setting up proper documents in advance can avoid court battles later. Our firm helps families understand responsibilities like managing trust assets or ensuring government benefits remain untouched.
Legal planning also keeps Medicaid benefits secure while preserving resources for necessary expenses. Always work with experts to plan ahead effectively!
Maximizing Your Medicaid Benefits: The Role of an Elder Law Attorney in Estate Planning & Medicaid Application
Guardianship and conservatorship ensure care for loved ones, but Medicaid planning protects their financial future. We know navigating Medicaid can feel overwhelming. That’s where an elder law attorney comes in.
We focus on estate planning and understanding the Medicaid application process. This ensures eligibility while protecting assets.
We help safeguard means-tested benefits like Supplemental Security Income (SSI). Our firm reviews your situation to create a plan tailored for you or your family member’s needs in New Jersey.
With proper preparation, we address healthcare costs, preserve wealth, and secure long-term care options without losing vital government support.
Choosing between an ABLE account and a Special Needs Trust depends on your unique needs. Both options help secure financial stability for loved ones with disabilities. We can guide you in making the best choice to protect benefits while planning for their future.
Let’s work together to create a plan that fits your family’s goals. Reach out today – peace of mind starts here!
FAQ: ABLE Accounts vs. Special Needs Trusts (SNTs)
What is an ABLE account?
An ABLE account is a tax-advantaged savings account created under the Achieving a Better Life Experience Act. It lets people with disabilities save for qualified expenses without jeopardizing SSI or Medicaid.
Who can set up an ABLE account?
Anyone with a disability diagnosed before age 26 can set up an ABLE account, either for themselves or through a legal representative.
How much can I contribute to an ABLE account?
The annual contribution limit is $17,000 (as of 2023), and working account holders may be able to add more based on their income, up to federal limits.
What can ABLE account funds be used for?
Funds can be used for housing, education, healthcare, transportation, and other disability-related expenses.
What is a Special Needs Trust (SNT)?
An SNT is a legal trust that holds assets for a person with disabilities to save and pay for extra needs, without risking eligibility for Medicaid or SSI.
How are SNTs and ABLE accounts different?
ABLE accounts have annual contribution limits and are best for daily expenses, while SNTs have no cap and can hold more types of assets, like real estate or inheritances.
Who manages a Special Needs Trust?
A trustee, chosen by the person who sets up the trust, manages the funds and makes distributions.
Can someone have both an SNT and an ABLE account?
Yes. Many families use both to maximize savings and flexibility for people with disabilities.
What factors should I consider when choosing between an SNT and an ABLE account?
Consider the amount you need to save, the types of expenses, who will manage the funds, and whether you want tax-free growth or more flexibility with assets.
