Families planning for a loved one with disabilities face a common question: Should we set up an ABLE account, a special needs trust, or both? In most cases, you’ll want both. They’re designed for different purposes, and when you use them together, they create a more complete financial safety net.
What ABLE Accounts Offer
Congress created ABLE accounts in 2014 through the Achieving a Better Life Experience Act. These accounts let people with disabilities who began before age 26 save money without losing their SSI or Medicaid benefits. The account holder controls everything. They make deposits. They decide when to spend. They don’t need anyone’s permission to access their own money. For people who want financial independence, this autonomy matters tremendously. There are limits. For 2024, you can’t contribute more than $18,000 per year to an ABLE account. If the total balance exceeds $100,000, it’ll affect SSI eligibility (though Medicaid stays protected no matter how high the balance goes).
How Special Needs Trusts Differ
A Northbrook special needs trust lawyer can set up a trust that holds far more money than ABLE accounts allow. There’s no cap on contributions and no limit on the total balance. Here’s the tradeoff: a trustee manages everything. The trustee decides what gets paid and when. This structure works well when the beneficiary needs help managing finances, or when families want oversight of substantial inheritances or personal injury settlements. Trustees can pay for an incredibly wide range of expenses that improve the quality of life without threatening government benefits. The trust can last for the beneficiary’s entire lifetime and even direct remaining funds to other family members after they’re gone.
Using Both Tools Together
Think of ABLE accounts as handling the everyday stuff. The account holder swipes their debit card for:
- Restaurant meals and entertainment
- Clothing and personal care items
- Transportation and ride shares
- Technology and communication devices
- Education and training costs
A special needs trust covers the bigger expenses that would blow through ABLE account limits fast:
- Vehicle purchases or modifications
- Home down payments or accessibility renovations
- Medical equipment insurance won’t cover
- Caregiving services and companion care
- Travel and vacation expenses
Strategic Planning Advantages
When you work with Kravets Law Group, we help coordinate both tools so they complement each other. The trust can make annual contributions to the ABLE account, keeping money accessible to the beneficiary while the trust protects larger assets. Some families use the ABLE account as a trial run. If their loved one demonstrates responsible spending with their ABLE account, trustees often feel more comfortable approving direct distributions from the trust for specific needs. There’s also the speed factor. Trust distributions sometimes take time, especially when trustees need to review requests and verify everything complies with the trust terms. The ABLE account gives beneficiaries immediate access to funds when something unexpected comes up.
Tax Considerations
ABLE account earnings grow tax-free if you use them for qualified disability expenses. Some states offer tax deductions for contributions, though Illinois doesn’t currently provide this benefit.
Special needs trusts file their own tax returns. The trust pays taxes on investment income that stays in the trust. When distributions go to beneficiaries, the tax liability might shift depending on what type of income is being distributed.
Estate Recovery Differences
Both tools can face Medicaid payback requirements, but the rules aren’t the same. ABLE accounts must repay state Medicaid programs after the beneficiary dies for services received after the account opened. Special needs trusts have different payback rules depending on whether they’re first-party or third-party trusts. A Northbrook special needs trust lawyer can walk you through which structure avoids estate recovery while meeting your family’s specific goals.
Making The Right Choice
Whether you need one tool or both depends on how much money you’re working with, whether the beneficiary can manage finances independently, and what you’re trying to accomplish long-term. Families with modest assets might rely primarily on an ABLE account. Those dealing with substantial inheritances, life insurance proceeds, or personal injury settlements typically need the added protection a special needs trust provides. Most families we work with end up using both. The ABLE account provides daily flexibility. The trust protects larger assets and provides professional oversight. Together, they adapt to changing needs over time without forcing you to choose between financial security and benefit eligibility. Getting these planning tools to work together properly requires understanding both disability benefits rules and estate planning strategies. The right legal guidance helps you structure everything to maximize resources while keeping your loved one’s benefits intact.