New York Estate Planning & Elder Law Blog
WHAT IS BEST FIT
Both an ABLE Act account and a special needs trusts try to accomplish essentially the same thing. Both attempt to ensure that a special needs child or person are financially planned for through various legal and financial means so as to enrich the life of the beneficiary. An ABLE Act account as well as a special needs trust also aim to protect the beneficiaries valuable governmental benefits that utilize a means based testing for eligibility purposes. While both products roughly accomplish the same thing, one may be better at accomplishing one thing rather than the other.
TWO DIFFERENT MEANS TO ONE END
Special needs trusts are more suited to non medical or non educational expenses, such as simple necessities in life, like clothes, hygiene products, and other things that help to enrich the life of the beneficiary. If the expense is indeed related to the disability, such as educational materials or tuition costs, the ABLE Act account would be better, as expenditures from a trust are considered income to the beneficiary. It is important to note that with careful planning, many expenditures from a special needs trust can likely be tax deductible, so the tax implications can be mitigated. ABLE Act accounts also generally require less oversight and involvement from either the beneficiary or beneficiaries caretaker. There can only be one ABLE Act account per person.
A Special Needs Trust, only the other hand likely requires a trustee to manage it and requires more involvement in its management . It is important to note that this is not always true, as Special Needs Trusts can be simple to setup and manage. The level of complexity and rules written into any trust document itself are a function of how much management and oversight as well as forethought and care are put into it by the settlor. If the settlor wants to set the trust up to cover a broad swath of individuals, such as all alumni of a particular school, such as created for the Hershey School, rather than just one grandchild, for example, naturally there will be variety in the level of complexity. In addition, if the trust is created by a third party, there are no practically no limitations on the amount of money that can be used to create the trust. The downside to that is that the funding of such a trust has tax implications. First there are gift tax implications of any money given to the trust. In addition, income generated from the assets or money provided to the trust is taxable income. New York allows up to $140,000 in tax deductions when deposited into an ABLE Act account. If the owner of an ABLE Act account passes away with money in it, that money must be given to the state to help pay back any public benefits that they recieved since opening the account.
The use of a 529 account or a special needs trust can best be utilized in conjunction with a larger estate planning strategy. As with any estate planning decision, it is best to consult with an experienced estate planning attorney.