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ABLE Act Account vs Special Needs Trusts

The Achieving a Better Life Experience Act (the ABLE Act) became effective in New York State on April 1,2016. The purpose of the ABLE program is to assist individuals with disabilities with saving funds in accounts to better enhance their independence and quality of life. The program is intended to supplement, not supplant, government entitlements, such as Medicaid and SSI. Distributions from the account can be used to pay for qualified disability expenses, including education, housing, transportation, and health.

At this time, the program is not available for individuals with disabilities to open an account but is expected to launch at the end of 2016 or in 2017.

The chart below provides a comparison between ABLE accounts and Special Needs Trusts.

Learn more about special needs trusts.

download-able-act-iconDownload Comparison Chart

ABLE
Account

First-party
Special Needs Trust

Third-party
Special Needs Trust


Governing authority

26
USC §529A (tax code)

42
USC §1396p(d)(4); supplemented in Arizona by ARS §36-2934.01

Trust
law

Cost
to establish

Nominal
startup fee

±$2500
or more

±
$1500 or more

Payback
provision

Yes.
State entitled to receive all ABLE balance at death of
beneficiary up to amount of Medicaid provided

Yes.
State named as remainder beneficiary to extent of Medicaid
provided

No

Beneficiary
eligibility

Individual
entitled to Social Security benefits (or otherwise disabled)
before age 26

Under
65 at time of trust creation and disabled by Social Security
definition

No
limits or requirements

Grantor/settlor

Any
person (but beneficiary owns account)

Person
with disability, but trust must be established by parent,
grandparent, guardian or court (not so for pooled trust)

Anyone
other than person with disability

Tax
issues

No
tax on earnings; distributions taxed unless used for “qualified
disability expenses”

Trust
earnings taxed to beneficiary under grantor trust rules; no
separate tax on distributions

Sometimes
income taxable to person contributing money to the trust;
otherwise taxed at higher trust rates
but
distributions to or for beneficiary may carry out income tax
liability

Effect
of distributions on benefits

If
for “qualified disability expenses,” no effect on eligibility
or benefit levels

Only
distributions for food and shelter raise issues re: eligibility;
distributions directly to beneficiary general precluded

Distributions
to beneficiary may cause benefit reduction or loss, as may
distributions for food or shelter; other distributions have no
effect on most eligibility programs

Management
of assets

State
program provider; account holder may choose state

Someone
other than beneficiary; court often supervises

Someone
selected by settlor; often family members but sometimes
professionals (with costs and bureaucracy)

Countable
resource?

Yes
for SSI if balance exceeds $100,000

No

Maximum
contribution

Gift
tax exemption amount (currently $14,000) per year total, from any
source

No
limit

Limit
on number of accounts

1
per beneficiary

No
limit