For individuals with disabilities or their caregivers, navigating financial planning while ensuring continued eligibility for essential public benefits like Supplemental Security Income (SSI) and Medicaid can be daunting. Fortunately, both ABLE accounts and special needs trusts (SNTs) offer valuable solutions. While SNTs have been a traditional option, ABLE accounts provide a simpler alternative. Notably, the passage of SECURE Act 2.0, in 2022, extended the age limit for establishing an ABLE account, making it accessible to a broader range of individuals. While there are differences between SNTs and ABLE accounts, under certain circumstances it might be beneficial to utilize both.
Means-based benefits
Government programs serve as pillars of support for individuals living with physical or mental impairments. Among the concerns following a medical diagnosis of disability, the burden of unpaid medical bills looms large and can often lead to financial instability. Additionally, many individuals with disabilities encounter obstacles in generating personal income, relying instead on a range of public benefits for essential support, including income assistance, food, and housing.
SSI and Medicaid are essential programs designed to provide support for individuals with limited income, typically those with less than $2,000 in assets. For 2025, the maximum monthly federal SSI benefit is $967 per individual and $1,450 for a qualified individual with an eligible spouse.2 In addition, Medicaid is not just health insurance; it can also provide waivers for residential or respite care. Meanwhile, Social Security Disability Insurance (SSDI) is sometimes available for people who suffer a disability before retirement age; after an individual receives SSDI for two years, they become eligible for Medicare coverage automatically. For example, if SSDI starts at age 33, Medicare eligibility starts at 35.
Most people are not eligible for means-based programs before the age of 18. A minor’s eligibility is based on their parent’s income and assets. However, upon reaching adulthood, individuals who rely on public benefits face a significant challenge: any increase in income could jeopardize their eligibility for these programs.
Consider a scenario where a young adult has been receiving SSI and Medicaid for several years. If one of the young adult’s parents passes away and leaves behind a $200,000 life insurance benefit, it could result in disqualification from means-based programs. Furthermore, there’s the possibility that the state may seek repayment of previous benefits the child received from a portion of the life insurance payout.
To safeguard against such circumstances, proactive financial and estate planning become essential. Through careful planning, individuals with disabilities can protect their benefits in the event of a life insurance payout or any other asset transferred to them.
ABLE accounts
Introduced under the Achieving a Better Life Experience (ABLE) Act of 2014, an ABLE account offers a tax-advantaged savings avenue for individuals with disabilities, allowing them to maintain eligibility for government programs if the account’s value remains under $100,000. Accessible to those diagnosed with disabilities before turning 26 (expanding in 2026 to age 46 due to the SECURE Act 2.0), ABLE accounts accept contributions from family, friends, or the beneficiary themselves. Although contributions are not tax-deductible, any earnings within the account and distributions to the beneficiary are tax-free.
Qualified disability expenses (QDEs) covered by ABLE accounts extend beyond disability-related costs. As outlined in Section 529A(e)(5) of the ABLE Act, eligible QDEs encompass a broad spectrum, including education, food, housing, employment training, transportation, assistive technology, health, and other expenses approved by IRS regulations. 2
Special needs trusts
Also referred to as supplemental needs trusts or discretionary trusts, SNTs can offer a lifeline in maintaining continuity of financial assistance from means-based programs while addressing other essential expenses.
One type of SNT, the third-party trust, originates from assets provided by someone other than the beneficiary. The grantor gives ongoing support through the SNT and, upon the beneficiary’s passing, the assets pass to another heir without triggering a claw back of prior benefits received. For families lacking resources to establish a third-party trust independently, a master-pooled trust, typically managed by a nonprofit, may serve as a viable alternative.
In contrast, a first-party trust is funded with assets already owned by the beneficiary. Essentially, the individual with special needs relinquishes control of these assets to maintain benefit eligibility, with any remaining assets post-beneficiary’s passing subject to state reclamation. For instance, in scenarios involving significant jury awards, the beneficiary might opt for a first-party trust to uphold means-tested benefit eligibility.
Key differences
While ABLE accounts and SNTs can be used to pursue similar objectives, there are advantages and disadvantages associated with each.
- Eligibility: ABLE accounts cater to individuals diagnosed before age 26 (expanding to age 46 by 2026), whereas first-party SNTs can be established until age 65, or later if pooled. Third-party SNTs have no age restrictions.
- Limits on contributions: SNTs have no contribution limits, whereas ABLE accounts allow annual contributions up to $19,000 for 2025. Although states managing ABLE accounts often set higher lifetime limits, typically over $300,000, only the first $100,000 is exempt from affecting SSI eligibility.
- Costs: ABLE accounts are easily opened online, while SNTs typically require legal assistance and can incur significant setup and ongoing maintenance costs.
- Accessibility: ABLE accounts offer quick access to funds through debit cards, unlike SNTs which usually lack this convenience.
- Taxes: Special needs trusts face a substantial 39% tax rate for trusts earning more than $9,000 annually (through 2025), whereas income from ABLE accounts remains tax-free.
- Permitted expenses: ABLE accounts cover a wide array of QDEs, while SNTs are geared toward enhancing quality of life and encompassing expenses like vacations, entertainment, pets, and health care not covered by government means-based programs.
Government programs offer crucial support to individuals with physical or mental impairments, yet often fall short in providing a sufficient standard of living. Leveraging tools like ABLE accounts and SNTs can help maintain access to means-based assistance while offering supplemental financial support. In certain circumstances, individuals may opt to establish both an ABLE account for immediate expenses and an SNT for more substantial purchases, thereby helping to maximize their financial resources and safeguarding their long-term well-being.
If you’re not sure if either is right for you, talk to your wealth advisor. If you are not a Mercer Advisors client and want to learn more, let’s talk.
1 “SSI Federal Payment Amounts For 2025,” Social Security Administration.
2 “Eligible Expenses for an ABLE Account,” Investopedia, Oct. 16, 2023.
