Parents and grandparents who want to provide for a disabled child or grandchild may create a Supplement Needs Trust, also called a Special Needs Trust (SNT), for that beneficiary.
The trust funds may be spent on the disabled individual without diminishing government benefits. An ABLE account is another type of fund that can also be created for the disabled person. The SNT and the ABLE account can work together for the benefit of the disabled person, but they work very differently.
Before SNT’s, parents would often disinherit the disabled child and leave money to the other children to provide for their disabled sibling. The problems are - what happens if the other children spend the money, or get sued, or the money goes towards a divorce, or the siblings die before the disabled child? This is a family plan, not a legal plan, fraught with risks.
A disabled person is often on government benefits, including Supplemental Security Income (SSI). To qualify for SSI, the disabled person may only own $2,000 or less. Qualifying for SSI also means receiving Medicaid for health insurance. If that person receives an inheritance, he or she loses these government benefits due to excess assets. Medicaid can recover the inheritance as a payback. With the SNT, parents and other family members may leave money to the SNT, which will not diminish or cancel the SSI and Medicaid. SNT’s provide legal plans that improve the lives of disabled individuals without the risks of the good intentions of the family plan.
SNT’s have strict rules. For example, the trustee of the SNT can only pay for items and services for the disabled beneficiary that are not covered by the necessities of food and housing provided by government benefits. The disabled beneficiary cannot receive any money from the SNT. This is where the ABLE account can help.
ABLE (standing for "Achieving a Better Life") accounts allow tax-free savings accounts and investments for disabled individuals. The accounts allow disabled persons on government benefits to control and spend their own money, a significant step forward, compared to the SNT with no access to money by the disabled beneficiary.
ABLE accounts also have strict rules. For example, the disabled person creates the account and may spend the money only for qualified expenses related to the disability that improve his or her quality of life. Anyone can contribute to the ABLE account. The total in the account cannot exceed $100,000. Total annual contributions cannot exceed $15,000.
On the death of the disabled beneficiary, any money left in the ABLE account is available to be paid back to the government for past benefits paid since the creation of the account. For a "first party SNT," created with the disabled person’s money, there is also a payback to the government. For a "third party SNT," created with other people’s money, there is no payback provision, so the heirs of the disabled beneficiary receive any remaining trust assets on the death of the disabled beneficiary.
For some disabled beneficiaries, access to funds is neither necessary nor prudent. For others, the ABLE account gives a welcome degree of autonomy compared to the restrictions of the SNT.