Estate planning for an individual with special needs frequently means making decisions to secure their financial future. During this process, one of the most important considerations is protecting your loved one’s assets without jeopardizing their access to means-tested government benefits. Both goals can be accomplished through ABLE accounts and special needs trusts in New York. Understanding the difference between these tools can help you decide on the appropriate option during special needs planning.
At Amoruso & Amoruso LLP, we want to help you make informed decisions to best support the people you love. With nearly 60 years of combined experience, our attorneys can help you with all aspects of special needs planning. Call or contact us today to learn how we can help.
What Are ABLE Accounts?
ABLE (Achieving a Better Life Experience) Accounts are tax-advantaged savings accounts that allow people with disabilities to save and invest money for qualified disability-related expenses. Anyone who became disabled before age 26 is eligible for an ABLE account. However, Congress recently passed the ABLE Age Adjustment Act, which will increase the age limit to 46 starting in 2026.
The proceeds of ABLE accounts are tax-free if used for qualified expenses. Beneficiaries can use the ABLE account without losing eligibility for government assistance programs like Social Security and Medicaid.
A person must be diagnosed with a qualifying disability before age 26 to qualify for an ABLE account. They must also follow state-specific rules and processes for opening an account. Assets under $100,000 in an ABLE account won’t count against eligibility for Social Security. Medicaid benefits aren’t affected, even if the ABLE account balance exceeds $100,000, as long as the person remains eligible for SSI.
What Are Special Needs Trusts (SNTs)?
A special needs trust provides financial support to disabled individuals without disqualifying them from receiving government benefits like Social Security or Medicaid. SNTs are a valuable tool in special needs planning because government benefits recipients must meet income and asset thresholds to qualify. Exceeding those limits could result in the loss of crucial benefits, but special needs trusts can help you avoid this outcome.
A special needs trust allows you to set aside funds toward caring for your loved one without counting toward their income. The SNT protects an individual’s eligibility for government benefits by holding assets separately so they are not considered part of their personal wealth. This distinction keeps them under the cutoff levels to receive Social Security and Medicaid.
Like other trusts, special needs trusts need a grantor (the person who establishes the trust), a trustee (the person who manages the trust), and a beneficiary (the person who receives the benefit). There are limitations on what the funds held in a special needs trust may be used to pay for. Generally, they must go to needs arising from the beneficiary’s disability.
There are three types of special needs trusts:
- First-party trust – This type of SNT uses the beneficiary’s own money. Congress has mandated a disabled person under 65 who retains mental capacity can set up a first-party trust to protect themselves from losing access to government benefits. Firm founder Michael J. Amoruso was instrumental in advocating for the passage of the Special Needs Trust Fairness Act, which made this option possible. A family member, legal guardian, or court also can set up a first-party SNT using the beneficiary’s funds.
- Third-party trust – A third-party SNT means that the funds in the trust come from someone other than the beneficiary, often a family member who wants to help supplement the disabled person’s expenses without jeopardizing their access to Medicaid or Supplemental Security Income.
- Pooled trusts – These are SNTs run by nonprofit organizations that pool the resources of many beneficiaries into a single trust. Each beneficiary has access to an account to use their funds, but often, when they pass away, a portion of what remains stays in the pool to benefit those still in it.
ABLE Accounts vs. Special Needs Trusts
There are essential differences between ABLE accounts and special needs trusts that may make one or the other a better fit for your situation.
Eligibility
- ABLE accounts – Available only for those with a disability onset before age 26 (Increasing to 46 in 2026)
- Special needs trusts – No age limitation for eligibility except for First Party SNTs which must be established before age 65
Contribution Limits
- ABLE accounts – Annual contribution limit changes annually
- Special needs trusts – No contribution limit, but gifts over the annual exclusion may have tax consequences
Tax Treatment
- ABLE accounts – Earnings grow tax-free if used for qualified expenses
- Special needs trusts – Income in the trust may be subject to taxes for amounts exceeding Qualified Disability Trust exemptions
Expenses Covered
- ABLE accounts – Funds can only pay for qualified disability expenses (QDEs) like education, transportation, personal support services, and assistive technology
- Special needs trusts – Government benefits may be reduced if funds go to pay for certain items, like housing and food
Cost and Complexity:
- ABLE accounts – Typically low-cost and easy to set up
- Special needs trusts – Involves legal fees and requires ongoing management
When to Use ABLE Accounts
ABLE accounts are good for managing daily expenses related to an individual’s disability. They’re a nice fit for those with modest assets seeking to maintain government benefits without creating a complex trust.
When to Use Special Needs Trusts
Special needs trusts are better when substantial assets, like an inheritance or a legal settlement, need protection. They also are a better option if the disabled individual is unable to manage their own finances. Special needs trusts provide long-term financial security while keeping government benefits intact.
Can I Use Both Together?
Using an ABLE account and a special needs trust can provide maximum flexibility and benefit in some scenarios. Your loved one can use an ABLE account for their daily expenses, while the trustee of a special needs trust can manage considerable assets on your loved one’s behalf. Consulting an experienced special needs planning attorney is essential to learn how to maximize the benefit of these tools.
How Amoruso & Amoruso LLP Can Guide You
The special needs planning attorneys with Amoruso & Amoruso LLP have nearly six decades of combined legal experience assisting New Yorkers with special needs planning. This particular area of the law is especially important to Michael Amoruso. As a sight and hearing-impaired individual, he has advocated fiercely for the implementation of laws opening doors for disabled people seeking to protect themselves using special needs trusts. In 2009, he received a U.S. Congressional Proclamation for his work in special needs law and elder law.
When appropriate, our law firm integrates special needs planning into comprehensive estate plans that address the entire scope of needs people have as they age. We place a premium on understanding your family’s unique circumstances and pinpointing solutions that are just right for you. Contact one of our special needs planning lawyers today for information about the many avenues that could be suitable for your family.
