Special Needs Trusts and ABLE Accounts

When you have a child with special needs, it is important to make plans for the child’s future.  Part of this planning should include financial planning.  Financial planning is important for everybody, not just wealthy people. This guide can help you understand what financial planning tools are available to people with disabilities and how these tools can be used to protect assets and eligibility for means-tested government benefits (SSI and Medicaid).

What are Special Needs Trusts?

Special Needs Trusts (SNTs) are irrevocable trusts that are set up to benefit individuals with disabilities.  SNTs can protect a disabled person’s benefits and allow them to maintain their eligibility for government benefits like Medicaid and SSI.  Like all trusts, a SNT must have (1) a settlor (aka grantor) - the person who puts assets into the trust; (2) a trustee - the person who manages the assets in the trust and (3) a beneficiary - the person who gets assets from the trust.  In the case of an SNT, the beneficiary must be a person with a disability.

Are there different kinds of Special Needs Trusts?

Yes, there are different types of Special Needs Trusts.  The first distinction is based on where the money (or other assets) in the trust comes from. If the money comes from anybody other than the disabled person, the trust is a “third-party trust.”  On the other hand, if the money is the disabled person’s money then the trust is a “first- party trust” or a self-settled trust.  This includes assets that the person has a legal right to, even if he or she does not actually own the asset. 

Third-party trusts can be either (1) stand-alone or (2) testamentary (written into a will).  First-party trusts can be either (1) stand-alone or (2) pooled (managed by a non-profit corporation). Third-party trusts are not subject to Medicaid Payback but first-party trusts are.  For this reason, most people would be better off with a third-party trust. 

Third-party trusts

Third-party trusts are sometimes called “discretionary” trusts because the trustee has sole and absolute discretion in deciding whether to make distributions.  This is important because if the beneficiary can demand anything from the trust, Medicaid will count the assets in the trust against the beneficiary.  A beneficiary cannot get to the money if the trustee has sole and absolute discretion. 

A stand-alone third-party trust is a current document that can be funded and used at the time it is signed.  A testamentary third-party trust is written into the settlor’s will (the trust is funded only when the settlor dies).  Stand-alone trusts are preferred because it may be years before a testamentary trust can be used for the beneficiary.  It is better to have money available to the beneficiary now.  The settlor can also write a will that “pours” his or her estate into a stand-alone trust.  Then, you have the best of both worlds.

Anybody but the beneficiary can be the settlor of a third-party trust and anybody except the beneficiary can contribute to a third-party trust.

First-party trusts

In certain situations, a first-party trust may be the only option.  Examples of when a trust would need to be first-party include when a disabled person is awarded money in a lawsuit and when a disabled person has received an inheritance. 

Medicaid does not count assets in a first-party trust for two reasons.  First, the property in the trust can only be used for the sole benefit of the beneficiary with disabilities.  Second, when the beneficiary dies, the trustee must pay back Medicaid in an amount equal to the cost of the Medicaid benefits the beneficiary received.  Therefore, these trusts are sometime called “sole benefit” or “Medicaid payback” trusts.

The settlor of a first-party trust is limited to the beneficiary, a parent, grandparent, guardian, or a court.  Like a third-party trust, a first-party trust can be a stand-alone document.  It can also be a “pooled trust.”  A pooled trust can be managed only by a non-profit corporation.   A pooled trust takes in money from many beneficiaries and holds them in individual accounts for a beneficiary’s use.  Upon the death of the beneficiary, the pooled trust can either pay back Medicaid or retain the money for its non-profit mission.

Limitations of both third-party and first-party SNTs

Any trust for the benefit of someone receiving means-tested public benefits (like Medicaid waivers and SSI) has some limitations.  If trust funds are used to pay for certain things, the beneficiary may lose public benefits or have them reduced. The general rule is that if you have a way to pay for certain things (typically things that the government will pay for), then you are not allowed to “shelter” money in a Special Needs Trust.  For this reason, most SNTs limit payment for healthcare costs (that Medicaid would otherwise pay), rent, utilities, mortgage payments, and meals.  These expenses are known as “shelter expenses.”  Also, SNTs will limit or refuse to pay cash to the beneficiary.

Do I need a lawyer to set up and maintain a Special Needs Trust?

Although technically anyone can create a Special Needs Trust, establishing the trust is complicated and it is extremely important to get the wording correct.  Maintaining the trust can also be complicated.   It is also important to know the responsibilities of the trustee and to understand how to pick a good trustee.  In most cases it is best to get legal help to establish and maintain a Special Needs Trust. 

What is an ABLE Account?

ABLE accounts are tax-advantaged investment accounts for people with significant disabilities that began before age 26 (regardless of how old they are when they open the account).  ABLE accounts allow people to save money while protecting eligibility for government benefits like SSI and Medicaid.  ABLE accounts were made possible by a federal law called the Achieving a Better Life Experience Act (ABLE Act) of 2014.  ABLE Accounts, like 529 plans, are managed by the states.  Several states including Ohio have ABLE accounts.  To learn more about ABLE accounts visit the ABLE National Resource Center

In Ohio, ABLE Accounts are known as STABLE accounts.  Information about STABLE accounts can be found on Red Treehouse. 

There are several important things to know about ABLE/STABLE Accounts:

  • To be eligible to open an ABLE account, an individual must have a significant disability (as defined by the Social Security Administration) that began before age 26.
  • The total annual contributions from all sources that can be put into any single ABLE account is $15,000 (may be periodically adjusted for inflation).
  • SSI eligibility will not be impacted until an individual has $100,000 or more in his or her ABLE account.
  • Medicaid eligibility will not be impacted regardless of how much is in the ABLE account.
  • An individual can only have one ABLE account.
  • The maximum amount of money that can be held in an individual ABLE account is subject to limitations set by the individual states.  Ohio STABLE accounts are limited to $462,000 (may be periodically adjusted for inflation).
  • ABLE accounts are subject to the Medicaid payback provision.

Do I need a lawyer to set up and maintain an ABLE Account?

No, it is very simple to set up an ABLE account and most people do not need an attorney to do so.  To create an Ohio STABLE account, click here.

Do I need both a Special Needs Trust and an ABLE Account?

It depends.  For some people there is a benefit to having both a Special Needs Trust and an ABLE Account.  Remember that ABLE accounts have an annual limit of $15,000, so if a person with a disability is receiving a large inheritance or settlement, a Special Needs Trust would be the appropriate choice.  Additionally, ABLE accounts are subject to the Medicaid-payback provision whereas third-party SNTs are not.  ABLE accounts are however easier and less expensive to establish, so some people might start with an ABLE account and then add an SNT later.

One important feature of ABLE accounts is that they can pay rent and utilities (so-called “shelter expenses”) for the beneficiary of the account.  Recall that SNTs cannot pay for shelter expenses.  But, an SNT is permitted to contribute to an ABLE account.  So, using a Special Needs Trust together with an ABLE account can be a good way to pay shelter expenses.

Additional Resources

These articles can help you learn more about the different types of Special Needs Trusts.


This guide was developed as part of a project made possible by a grant from the Ohio State Bar Foundation. The views expressed herein do not necessarily represent those of the Ohio State Bar Foundation.

Lead researcher/author: Helen Livingston Rapp, Esq., RedTreehouse.org Legal Intern

Jeanine Carroll