Now that STABLE accounts are available to individuals with disabilities, parents and guardians often ask   whether they should establish a trust for their loved one as a substitute or in addition to these accounts.   Before addressing this question it is important to review the benefits and limitations of both.

STABLE accounts are a tax preference savings vehicle that allow for tax free withdrawals on the earnings as long as the withdrawals are related to the individual’s disability and enhance the quality of life of the individual.  Assets in the accounts do not count against federal benefits like Medicaid or Social Security (SSI benefits are suspended after 100K.)  Special Needs Trusts, on the other hand, are an estate planning tool that establishes a means for a trustee to direct assets to the individual without jeopardizing the individual’s eligibility for Medicaid or Social Security.  The two type of tools are similar in that they both shelter assets from being counted towards federal eligibility limits; however, a STABLE account is primarily a tax savings investment vehicle while a trust is primarily an estate planning tool. You would not want to establish an STABLE account for example to address the issue of how to direct assets after your decease.

Since they serve different purposes, one shouldn’t think of the two tools as being “either or” but “both and.”  In other words, a Special Needs Trust can be a useful compliment to an individual’s STABLE account. A STABLE account has the advantage of being relatively low cost to maintain and flexible to use; however, after the account reaches $100K, the individual’s SSI payment is suspended.  A trust doesn’t have this $100K limitation but it offers a lot less flexibility and discretion as to how expenses are used without impacting SSI benefits. (Specifically if trust expenses are used to pay for “everyday” room and board expenses of the individual, that individual’s SSI benefit is reduced by 1/3rd.)

As an example of how the two tools can work together, consider the situation where the adult individual is earning $10K a year but lives with the family.  Since the individual has minimal expenses his savings tend to accumulate, which regularly poses a challenge in maintaining his Medicaid and Social Security eligibility.   In addition, let’s say that the family has $200K in either its 401K or IRA accounts.  In order to protect the individual’s eligibility for Medicaid and Social Security benefits the family could open a STABLE account to allow for the individual to contribute his work earnings to that account thus avoiding jeopardizing his benefits.  At the same time they could establish a family special needs trust to hold remaining assets of the parents (e.g. retirement accounts) after their decease.  The special needs trust, could be set up in part for the benefit of the individual but for other family members as well, thus avoiding the federal payback provision.

Key considerations in establishing a special need’s trust is whether the family have significant assets that they would want to keep from the Medicaid and Social Security payback provisions and the ongoing costs of maintaining a trust.  (A simple guideline as to what constitutes “significant” would be assets that exceed $100K.)  If the family does have significant assets they want to protect, they should at least consider establishing a family special needs trust.  Depending on the complexity of the individual’s and family situation, establishing a special needs trust can be drafted for less than $1,000; however it is the ongoing fees and taxes to maintain the trust that needs to be taken into account.   Marginal taxation rates can be as high as 40% and there is the ongoing costs and hassle of filing annual tax returns for the trust, not to mention the work a trustee assumes in administering and overseeing the trust.


Below is a summary of the features of the ABLE accounts versus the special needs trust:


Account Type Assets Sheltered Flexibility Limits Taxes on Withdrawals


Yes Yes $100K SSI None, if for the benefit of the individual
Special Needs Trust Yes No None Possible

STABLE accounts and Special Needs Trusts both can assist the individual with disabilities in achieving their financial and estate planning needs.  Which should vehicle should you use?  Perhaps both. Each account needs to be carefully considered in determining whether it will provide the individual with the best planning options.

By Barry Jamieson, CFP®, MA

Leave a Reply

Your email address will not be published.