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Special needs trusts, ABLE accounts help parents provide long-term support for disabled children

by Legacy Plan
September 2, 2023

Being a parent comes with an inherent responsibility and concern for the well-being of their children. This universal sentiment, shared by parents across cultures and backgrounds, centers on the hope that their children will thrive in health, happiness and security. When a child has a disability, this ingrained parental concern not only intensifies but also diversifies, taking on more layers than most can imagine.

Children with disabilities often have unique medical and therapeutic needs. Whether it’s frequent doctor visits, specialized medications, physical therapy sessions or assistive devices, their requirements often go beyond those of typically developing children. Parents must become advocates, researchers and sometimes medical experts in their child's specific disability. They seek the best treatments, stay updated with the latest research and fight for their child's rights to access and inclusion. The logistical and financial challenges associated with these tasks can be enormous.

Beyond the physical aspect, there's an important emotional dimension. Disabilities, whether visible or invisible, can lead to social isolation, bullying and a myriad of other challenges that impact a child’s self-esteem and emotional health. Parents become their child's foremost cheerleaders, ensuring their child feels loved, valued and confident in their abilities. They also often act as a bridge to the outside world, facilitating friendships and social interactions that might not occur naturally.

While every parent worries about their child's future, parents of disabled children face additional uncertainties. Questions like "Will my child be able to live independently?"; "Who will care for them when I'm gone?"; or "How will they be financially supported?" are omnipresent. These are not just hypotheticals but pressing concerns that need concrete answers.

Perhaps one of the most heart-wrenching aspects is the realization that parents won’t always be there to support and advocate for their child. This knowledge drives many to seek long-term solutions – from setting up trusts, to ensuring a strong support system in the form of committed family members or community resources, to laying down detailed care instructions. Their goal is to build a safety net so robust that their child remains protected and cared for even in their absence.

In essence, for parents of disabled children, the traditional concerns that come with parenthood are compounded with unique challenges and uncertainties. The journey is paved with love, resilience and an unwavering commitment to their child’s well-being.

Caring for a disabled child

Parents have to think about the physical needs of the child during the parents’ lifetime. These needs might include regular medical checkups, therapies and other support services. These concerns extend to questions like:

  • Who will take on the primary caregiving role?
  • What kind of professional assistance might be required?
  • How can they be sure of the quality and compassion of care?

Parents also have concerns about the welfare of a disabled child when they are no longer available to care for them. There's an anguish over what will happen to their child after they're gone. Key concerns include:

  • Who will step into the caregiving role?
  • How can they ensure that their child has the financial means for care?
  • Government benefits and inheritance dilemmas

What benefits are available for a disabled person?

Disabled individuals often rely on government benefits such as Supplemental Security Income (SSI), Medicaid and disability income. These benefits are essential, providing financial support and health care provisions that might be otherwise unaffordable. However, these benefits often have strict financial eligibility criteria. For instance to qualify for SSI, an individual must have limited assets. If a disabled person inherits a substantial amount, they might exceed the allowable asset limit, jeopardizing their eligibility for SSI and related Medicaid benefits.

Some benefits might also have income caps. A direct inheritance could be viewed as income, thus making the disabled individual ineligible to receive benefits.

How can I protect my disabled child’s inheritance and benefits?

To ensure that a disabled child doesn't lose out on crucial benefits but can still benefit from an inheritance, several strategies can be considered.

One is a special needs trust, which is a legal entity designed to benefit a person with disabilities. Assets placed in the trust, also referred to as a supplemental needs trust, aren't considered to be the disabled person's direct assets for purposes of government benefits. Parents can fund the special needs trust with their assets, ensuring that the funds are used for the child's welfare without affecting their benefits.

For example, Mr. and Mrs. Smith have a son with a severe disability. They set up a special needs trust, and upon their passing, their estate goes into the trust. The trust can pay for their son's out-of-pocket medical expenses, therapies and other needs, but since the money is in the trust and not directly under their son’s name, he remains eligible for government benefits.

What is a special needs trust?

A special needs trust is a legal tool specifically designed to benefit individuals who have disabilities. By setting up such a trust, parents or guardians can ensure that a disabled loved one has access to funds that enhance their quality of life without jeopardizing their eligibility for vital government benefits while safeguarding their financial future. It's a beacon of support, ensuring the well-being of a loved one even when the primary caregivers are no longer around.

To establish a special needs trust, you must choose from the three primary types of special needs trusts – first-party, third-party or pooled. First-party trusts are funded with the disabled person's own assets, perhaps from a lawsuit settlement or an inheritance. Third-party trusts are funded with assets from someone other than the beneficiary, often parents or relatives. Pooled trusts, meanwhile, are managed by nonprofit organizations, where individual beneficiaries have separate accounts, but funds are pooled for investment purposes.

In drafting the trust, it's essential to work with an attorney experienced in special needs planning. The trust document must be carefully worded to ensure the beneficiary doesn’t have control over the trust funds and to specify that the trust's purpose is to provide "supplemental" benefits beyond what government programs offer.

The trustee of the trust is a person or institution (like a bank) that will manage and distribute the trust's funds. It's crucial to choose someone reliable, trustworthy and knowledgeable about the beneficiary's needs. Once the trust is set up, it needs to be funded. Assets, cash, real estate, investments and other properties can be transferred, or funded, into the trust.

Who controls a special needs trust?

The trustee has discretion over the distribution of the trust's funds. These funds should never be given directly to the beneficiary, but instead should be used to pay for the beneficiary's expenses directly. This ensures that the assets in the trust are not counted as the beneficiary’s resources.

Funds from the trust can be used for a wide range of expenses that enhance the beneficiary's quality of life. This can include education, recreation, counseling, medical expenses not covered elsewhere and more. However, it shouldn't cover basic needs already provided by government benefits. Assets within the trust are generally protected from creditors. This means that if the beneficiary has debts or liabilities, creditors can't access the trust funds.

Since the assets in a special needs trust aren't counted as the disabled person's assets, they can still qualify for government programs like Supplemental Security Income and Medicaid. This is one of the main reasons to set up such a trust.

How is a special needs trust terminated?

Conditions for ending or terminating a special needs trust vary. For first-party trusts, upon the beneficiary's death, the state may seek reimbursement from remaining assets for Medicaid expenses incurred. For third-party trusts, assets can be passed to other family members or beneficiaries.

What is an ABLE account?

Achieving a Better Life Experience (ABLE) accounts allow individuals with disabilities to save and invest money without losing eligibility for certain public benefits programs. Money from these accounts can be used for qualified disability expenses without jeopardizing benefits. The ABLE Act was signed into law in December 2014. Before then, individuals could be disqualified from these benefits if they had more than $2,000 in assets. ABLE accounts present an effective means for individuals with disabilities to achieve greater financial security without compromising essential federal benefits. They offer flexibility, tax advantages and an enhanced quality of life, all while catering to the unique needs of the disabled community.

There are certain requirements to be eligible for an ABLE Account. First, the onset of the individual’s disability must have occurred before the age of 26. The individual also must be entitled to benefits based on blindness or disability under the Social Security Act, or they can self-certify a similarly severe disability with a written diagnosis from a licensed physician. While a resident can open an ABLE account in their home state, many states allow out-of-state residents to open accounts. It's essential to research and select a state program that aligns with the individual's needs, even if it's not their resident state.

Most states offer online registration for ABLE accounts. The process generally requires personal information about the beneficiary and the account administrator (if not the beneficiary). As of 2023, up to $17,000 per year can be contributed to an ABLE account by all contributors combined. This amount may be adjusted annually for inflation. The earnings on investments are federally tax-deferred and tax-free if used for qualified disability expenses. Funds from ABLE accounts can be used for a broad range of products and services such as education, housing, transportation, employment support, health and wellness, and more.

How does an ABLE account impact federal benefits?

The first $100,000 in the ABLE account is exempted from the SSI $2,000 individual resource limit. If the account exceeds $100,000, the beneficiary's SSI benefits could be suspended, but not terminated. Once the account falls below $100,000, the SSI benefits resume.

ABLE account balances and distributions generally do not affect Medicaid eligibility. However, after the death of the beneficiary, states can recoup some expenses from the ABLE account equivalent to the Medicaid services used by the beneficiary.

The beneficiary can control the funds if they are competent to do so. Otherwise, a parent, legal guardian or a person granted power of attorney can control the account. If the beneficiary moves to another state, the account can move with them. They don't need to establish a new account in the new state. Often, states offer various investment options. Beneficiaries can select where their funds are invested, and they can change their investment options up to two times a year.


Being a parent of a disabled child brings intense and multifaceted concerns. Beyond the typical parental worries, these parents navigate additional challenges related to their child’s unique medical, therapeutic and emotional needs. Such children may face social isolation, bullying and esteem issues, leading parents to become their foremost advocates and emotional anchors. The future poses questions about the child’s independence, financial security and long-term care, especially once parents are no longer around. Many parents establish long-term safety nets, like trusts or community resources, ensuring their child's well-being.

Disabled individuals often depend on government benefits like SSI and Medicaid, which have strict financial criteria. Inheriting assets can jeopardize these benefits. To circumvent this, parents can establish a special needs trust. This legal entity holds assets for the disabled individual's welfare without affecting their eligibility for government benefits. The trust protects these assets from direct control by the beneficiary and from creditors, ensuring the disabled individual remains eligible for vital government programs.

ABLE accounts offer another financial solution. These accounts allow individuals with disabilities to save without losing benefits. The accounts are tax-advantaged, flexible and can be used for various qualified expenses, from education to health. They don't typically affect Medicaid eligibility and are exempt from SSI resource limits up to $100,000. However, they might impact these benefits if certain thresholds are exceeded. The management of the account varies based on the beneficiary's competency.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at

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