Special Needs Trust vs. ABLE Account in New Jersey: What's the Difference?

When planning for the financial future of a loved one with a disability, families often face an important question: How can we set money aside for their needs without affecting government benefits they may depend on?

Two options that frequently come up are special needs trusts and ABLE accounts.

Both can help individuals with disabilities maintain financial resources while protecting eligibility for certain government assistance programs. However, they work differently, have different requirements, and serve different purposes.

For families in New Jersey, understanding these differences can help determine whether one option, or a combination of both, makes sense.

What Is a Special Needs Trust?

A special needs trust is a legal arrangement that allows money or property to be held and managed for the benefit of an individual with a disability.

When properly established and administered, the trust can help preserve eligibility for means-tested government benefits, including Supplemental Security Income (SSI) and Medicaid.

Instead of giving money directly to the beneficiary, assets are placed into a trust managed by a trustee. The trustee is responsible for using those assets according to the trust's terms and applicable laws.

Special needs trusts can help pay for expenses that improve the beneficiary's quality of life, such as education, transportation, personal care, recreation, and medical services not otherwise covered.

There are two common types of individual special needs trusts:

Third-party special needs trusts are generally funded with assets belonging to someone other than the beneficiary, such as parents or grandparents. These trusts are frequently used in estate planning when family members want to leave an inheritance to a loved one with special needs.

First-party special needs trusts are funded with the beneficiary's own assets, which might come from an inheritance received outright, a legal settlement, or other funds. These trusts have additional legal requirements, including Medicaid reimbursement provisions.

The distinction matters because the source of the money affects how the trust must be structured and what happens to remaining assets after the beneficiary's death.

What Is an ABLE Account?

An ABLE account, short for Achieving a Better Life Experience account, is a tax-advantaged savings account designed for eligible individuals with disabilities.

New Jersey offers its own program called NJ ABLE.

Unlike a special needs trust, an ABLE account is owned by the individual with the disability. Eligible individuals can open and manage their own accounts, although an authorized representative may act on their behalf when appropriate.

Family members, friends, and others can contribute money to the account.

Funds can be used for qualified disability expenses, which may include housing, education, transportation, healthcare, assistive technology, and other expenses that support the account owner's health, independence, or quality of life.

Earnings and qualifying withdrawals receive favorable federal tax treatment.

Who Qualifies for an ABLE Account in New Jersey?

As of January 1, 2026, the disability must have begun before the individual's 46th birthday.

This is an important expansion from the previous age-of-onset requirement of 26.

The individual must also meet applicable disability eligibility requirements, such as qualifying for certain disability benefits or meeting the program's disability certification standards.

A person does not necessarily have to be receiving SSI to qualify.

There are also contribution limits. For 2026, the standard annual ABLE contribution limit is $20,000 from all contributors combined. Certain employed account owners may qualify to contribute additional funds under the ABLE to Work rules.

These requirements make ABLE accounts accessible to many families, but they aren't available to everyone.

What Are the Main Differences Between a Special Needs Trust and an ABLE Account?

Although both options can support financial planning for someone with a disability, several differences are worth understanding.

Who Controls the Money?

With a special needs trust, a designated trustee manages the assets and decides how funds are used according to the trust document and applicable laws.

With an ABLE account, the eligible individual owns the account and may have more direct control over spending. An authorized representative can assist when needed.

This can make an ABLE account useful for individuals who want greater independence in managing everyday expenses.

How Much Money Can Be Saved?

Special needs trusts generally do not have the same annual contribution limits that apply to ABLE accounts.

They may be suitable for larger inheritances, life insurance proceeds, or other substantial assets.

ABLE accounts have annual contribution limits and program account limits.

For individuals receiving SSI, the first $100,000 in an ABLE account is generally excluded from the SSI resource calculation. Amounts above that threshold may affect SSI payments, although Medicaid protections may continue under applicable rules.

What Can the Money Be Used For?

Both arrangements can support a wide range of needs, but their spending rules differ.

ABLE account withdrawals must be used for qualified disability expenses. These expenses are broadly defined and can include many everyday costs connected to maintaining health, independence, and quality of life.

Special needs trusts may also pay for many goods and services, but trustees must consider how distributions could affect benefits.

For example, certain trust payments for shelter may reduce SSI payments, while properly handled ABLE account distributions can provide different treatment.

Families should understand these distinctions before using either arrangement for recurring living expenses.

What Happens to the Money After the Beneficiary Dies?

This is another important difference.

A properly structured third-party special needs trust can generally direct remaining assets to other beneficiaries without requiring Medicaid reimbursement solely because the original beneficiary received Medicaid.

First-party special needs trusts, however, generally must include provisions for reimbursing Medicaid programs from remaining trust assets, subject to applicable rules.

ABLE accounts may also be subject to Medicaid recovery claims after the account owner's death, although the scope and treatment of those claims depend on applicable federal and state requirements.

These differences can have significant implications for families who want to provide long-term support while also planning for how remaining assets will eventually be distributed.

Can Someone Have Both a Special Needs Trust and an ABLE Account?

Yes. An eligible individual can generally benefit from both arrangements.

In fact, using a special needs trust alongside an ABLE account may offer advantages that neither provides on its own.

For example, parents might establish a third-party special needs trust to hold an inheritance intended for their adult child.

The trustee could manage the larger assets while making appropriate contributions to the beneficiary's ABLE account.

The ABLE account could then be used for certain everyday expenses, giving the beneficiary greater flexibility and independence.

This approach may also help address expenses, such as housing, that require particular care when paid directly from a trust.

However, contributions, distributions, and benefit eligibility must still be handled correctly. Simply transferring money between accounts does not eliminate the applicable rules.

Is an ABLE Account Enough Without a Special Needs Trust?

For some individuals, an ABLE account may provide an effective way to save money for disability-related expenses.

However, it may not be sufficient for every family's long-term planning needs.

For example, parents who intend to leave a substantial inheritance to a child receiving means-tested benefits may need a more comprehensive estate plan.

An ABLE account's contribution limits can make it unsuitable as the sole destination for a large inheritance.

A special needs trust may provide greater flexibility for managing substantial assets, appointing a trustee, and establishing long-term instructions for how funds should be used.

The right arrangement depends on the individual's circumstances, available resources, eligibility for benefits, and the family's goals.

How Do You Decide Which Option Is Right?

Before choosing between an ABLE account and a special needs trust, families should consider several questions.

• Does the individual currently receive SSI, Medicaid, or other means-tested benefits?

• How much money needs to be protected or managed?

• Will the funds come from the individual's own assets or from family members?

• Can the individual manage financial decisions independently?

• Who will oversee the money in the future?

• What should happen to remaining assets after the beneficiary's death?

These questions can help identify whether an ABLE account, a special needs trust, or both may be appropriate.

It's also important to coordinate these arrangements with wills, beneficiary designations, life insurance policies, and other estate planning documents.

An otherwise well-intentioned inheritance can create unintended benefit eligibility problems if it isn't properly planned.

Special Needs Planning in Bergen County, New Jersey

Planning for a loved one with special needs involves more than setting money aside. Families also need to consider government benefits, long-term financial management, and who will make important decisions in the future.

The Law Offices of Joseph D’Urso helps New Jersey families understand their estate planning options and prepare for the long-term needs of loved ones with disabilities.

Whether you're considering a special needs trust, exploring how an ABLE account fits into your family's plans, or reviewing an existing estate plan, Joe can help you understand the legal considerations involved.

Contact The Law Offices of Joseph D’Urso to discuss special needs planning and the steps you can take to protect your loved one's future.