Planning for Loved Ones with Extra Needs

Planning for a loved one with special needs or a disability requires more than average planning. It is important to understand which tools are available to plan effectively without jeopardizing government benefits. Many needs-based programs limit how much a person may have in assets; however, there are several options available, including the Achieve a Better Life Experience (ABLE) account and a special needs trust, that allow a person to maintain assets without becoming ineligible for public benefits.  

What are ABLE Accounts? 

An ABLE account is a savings and/or investment option for people with disabilities who qualify. Through the ABLE Act, a person whose disability began before age 46 (a recent change from 26) is allowed to hold up to $100,000 in assets without affecting their Supplemental Security Income (SSI) eligibility. Amounts exceeding $100,000 may result in a suspension of SSI benefits until the balance falls below the threshold. ABLE accounts can also support eligibility for other needs-based programs such as FAFSA (Free Application for Federal Student Aid), HUD (Housing and Urban Development), SNAP (Supplemental Nutrition Assistance Program), Medicaid, Medicare, SSDI (Social Security Disability Insurance) or VRS (Vocational Rehabilitation Services).  

The funds invested in an ABLE account grow tax-free, are subject to the annual gift tax exclusion (currently $19,000 per year, per beneficiary), and can be used for a broad range of expenses including food, housing, transportation, education, employment, medical expenses, and other qualified disability expenses (QDEs). In some cases, individuals who work may be eligible to contribute additional funds beyond the annual limit. There are 52 ABLE plans available, including Washington D.C. and Guam, and most plans allow out-of-state residents to open an account.  

What are Special Needs Trusts? 

A special needs trust (SNT) is a legal arrangement, typically set up by a parent or guardian for the benefit of the person with special needs or disability (the beneficiary). An SNT ensures that assets, often money or a life insurance policy, are held and managed to support the beneficiary without interfering with eligibility for public benefits. There are two types of special needs trust, a First-Party SNT and a Third-Party SNT: 

First-Party SNTs are funded with assets that belong to the trust beneficiary or to which the beneficiary was legally entitled, including, but not limited to, monetary awards or settlements. These trusts must include provisions required under federal and state Medicaid law, including notice and a Medicaid payback requirement upon the death of the beneficiary or earlier termination of the trust. Under these provisions, any remaining assets in the trust must be used to reimburse the state(s) for medical assistance provided through Medicaid, up to the total amount paid on the beneficiary’s behalf.  

Third-Party SNTs are funded with assets belonging to a person other than the trust beneficiary (e.g., parent, grandparent, or other family member), and to which the beneficiary never had possession or legal interest. These trusts are not subject to Medicaid payback requirements.  

Building A Plan 

Planning for a loved one’s future – especially for a time when you may no longer be there – is never easy, but it is essential to ensuring their continued care, stability, and quality of life. A thoughtful plan goes beyond financial tools and should reflect the full picture of your loved one’s needs, routines, and support system. To assist you in the planning phase, consider the following:  

• Draft a Letter of Intent – A letter of intent is a critical, though non-legal, document that provides guidance for future caregivers. 

• Life insurance planning – Key to ensuring long-term financial support. When evaluating coverage, consider not only current needs but also the long-term cost of care, inflation, and the availability of future caregivers.  

Naming Key Roles and Successors – Identify and formally name individuals who will play important roles in your plan, such as trustees, guardians (if appropriate), and successor decision-makers.  

Common Pitfalls to Avoid 

When leaving assets to a loved one with special needs or a disability, it is important to avoid common mistakes that may result in the loss or suspension of critical public benefits. For example; 

Naming the individual directly as a beneficiary of a life insurance policy instead of the trust 

For example, should you decide to purchase a life insurance policy with a death benefit of $500,000, you will want to name the Third-Party SNT as the beneficiary with your loved one supported by the trust, rather than naming them as the direct beneficiary.  

1. Giving money directly to the person, unintentionally disqualifying them from benefits
2. Not coordinating with all family members
3. Waiting too long to plan 

When considering opening an ABLE account and/or a special needs trust for someone you love, start by researching your home state, as there may be state-specific tax credits or deductions available. You can also explore resources such as the ABLE National Resource Center to compare plans and better understand your options. Because establishing a special needs trust is a legal process, partnering with a qualified special needs attorney alongside an Accredited Financial Counselor® can help ensure your plan is structured properly and built to last. Taking the time to start these conversations early can make a meaningful difference in protecting your loved one’s long-term financial stability and access to essential benefits. 

Samuel Molina is an Accredited Financial Counselor®, Certified Financial Therapist™ Practitioner, CEO and Founder of The Academy of Financial Education, a non-profit organization dedicated to helping the community have a healthier relationship with money. Visit Samuel’s FindAnAFC profile to view his services and connect with him on LinkedIn.