Last week I mentioned ABLE accounts as a possible tool for loved ones with disabilities, in this week’s column I decided to give a little more information on this subject. One account some families use to provide for special needs adults is the ABLE account, a tax-advantaged savings account for individuals with disabilities, named from the Achieving a Better Life Experience Act of 2014.
Planning for the future can be overwhelming, but creating a care plan is one place to start for a family dealing with a member who has a disability. Your loved one might qualify for local or federal benefits and you might be able to save for their needs in a tax-advantaged ABLE account. For long-term planning, you might want to consider a trust for an individual with special needs. When you have a family member with special needs, you think about so many things all at once that future planning often gets shunted aside in favor of getting through today. But most of the challenges you face are not temporary. So when you are ready, you might consider thinking through the whole life cycle of help that is ahead of you.
A good test for when you need to do advanced financial planning for an individual with special needs is if you anticipate them needing assistance caring for themselves through adulthood. When you determine the severity of the need, you can then figure out what level of local and federal benefits are involved.
Individuals lose eligibility to certain government benefits if they have more than $2,000 in countable resources ($3,000, if married), according to the Social Security Administration. But by saving in an ABLE account, some families can help shield contributions from that countable-resources limit. What’s more, after-tax contributions to these accounts can grow tax-deferred, and if withdrawals are used for qualified disability expenses, which includes but is not limited to rent, food, transportation, education and employment training, health care, and personal support services, any earnings on such distributions will be federal income tax-free. These accounts don’t make sense for everyone, so consult with a financial advisor to see if it is a good strategy for you.
It’s important to know that ABLE accounts do have an annual contribution limit. In 2025, the limit is $19,000 from all contributors in aggregate. However, the ABLE to Work provision of the Tax Cuts and Jobs Act of 2017 allows ABLE account owners who can work to save an additional amount equal to the lesser of their compensation for the taxable year, or an amount equal to the federal poverty level, which is $15,650 per single-person household in 2025. Additionally, if the total assets in the ABLE account exceed $100,000, Social Security for the person with disabilities may be suspended.
It can be hard for families to look far down the road and think about what happens when primary caregivers are no longer able to care for their loved one, but setting up for the future can prevent mistakes later on that could negatively impact benefits and cause conflict.
For instance, it may not be a good idea to list a person with special needs as the beneficiary on a parent’s financial and retirement accounts. If the assets go to the child, that could interfere with their ability to receive Social Security income for disability benefits.
There are several types of trusts that many families establish for the benefit of individuals with special needs. One of the most common is a third-party special needs trust, which is created by someone who wants to leave money for a dependent with special needs but doesn’t want that person to lose out on government benefits. The trust can be established by a Will or created during the benefactor’s lifetime. The creators of the trust appoint a trustee who has discretion over when and how funds are distributed. The trustee cannot distribute money directly to the dependent, but they can pay for certain items and services not covered by the dependent’s monthly Supplemental Security Income (SSI) for disability. Upon the death of the dependent, whatever assets are left in the trust can be distributed according to the creator’s wishes as specified in the terms of the trust. A third-party special needs trust can be used in conjunction with an ABLE account, so families needn’t choose one or the other.
All estate plans need to evolve over time to keep pace with changes in people’s lives and financial situations. When your family is dealing with an individual who has special needs or disabilities, it is even more important to include them in your plans. To make sure your plan stays current, review it every 3 to 5 years, or whenever your life or your family changes in a major way. That way you can be confident that your loved ones will be cared for when you’re no longer here to look after them financially.