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Financial planning for loved ones with disabilities

Key takeaways

  • Planning for the future can be overwhelming, but creating a care plan is one place to start for a family dealing with a member who has a disability.
  • Your loved one might qualify for local or federal benefits and you might be able to save for their needs in a tax-advantaged ABLE account.
  • For long-term planning, you might want to consider a trust for an individual with special needs.

When you have a family member with special needs, you think about so many things all at once that future planning often gets shunted aside in favor of getting through today. But most of the challenges you face are not temporary. So when you are ready, you might consider thinking through the whole life cycle of help that is ahead of you.

To help get started, try thinking about your planning in life stages:


Figuring out the financial parameters of caring for a family member with special needs often starts with the care plan, known as a letter of intent. For most people, this is not a formal legal document or template, but more of a handbook that guides your future support team on how to provide the best care for your loved one.

When crafting your letter of intent, there is no standard set of requirements. You can begin with basic information and add more over time. Some good places to start might be your loved one's daily routine, medical care, life goals, and plans.

From there, you can figure out your financial needs. For example, does your house need structural modification? Or does one spouse intend to be a primary caretaker and not work full time? There are many variables, like the age of your loved one, the exact nature of their disability, and the overall financial condition of your family.

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Creating a plan

A good test for when you need to do advanced financial planning for an individual with special needs is if you anticipate them needing assistance caring for themselves through adulthood. When you determine the severity of the need, you can then figure out what level of local and federal benefits are involved.

One account some families use to provide for special needs adults is the ABLE account, a tax-advantaged savings account for individuals with disabilities, named from the Achieving a Better Life Experience Act of 2014.

Individuals lose eligibility to certain government benefits if they have more than $2,000 in countable resources ($3,000, if married), according to the Social Security Administration. But by saving in an ABLE account, some families can help shield contributions from that countable-resources limit. What's more, after-tax contributions to these accounts can grow tax-deferred, and if withdrawals are used for qualified disability expenses, which includes but is not limited to rent, food, transportation, education and employment training, health care, and personal support services, any earnings on such distributions will be federal income tax-free. These accounts don't make sense for everyone, so consult with a financial advisor to see if it is a good strategy for you.

It's important to know that ABLE accounts do have an annual contribution limit. In 2024, the limit is $18,000 from all contributors in aggregate. However, the ABLE to Work provision of the Tax Cuts and Jobs Act of 2017 allows ABLE account owners who can work to save an additional amount equal to the lesser of their compensation for the taxable year, or an amount equal to the federal poverty level, which is $14,580 per single-person household in 2024 ($18,210 for Alaska residents and $16,770 for Hawaii residents).

Additionally, if the total assets in the ABLE account exceed $100,000, Social Security for the person with disabilities may be suspended.

Note: SECURE 2.0, enacted at the end of 2022, increases the disability onset age for a qualifying disability for an ABLE account to 46 years old from 26 starting in 2026.

Long-term planning

It can be hard for families to look far down the road and think about what happens when primary caregivers are no longer able to care for their loved one, but setting up for the future can prevent mistakes later on that could negatively impact benefits and cause conflict.

For instance, it may not be a good idea to list a person with special needs as the beneficiary on a parent's financial and retirement accounts. If the assets go to the child, that could interfere with their ability to receive Social Security income for disability benefits.

There are several types of trusts that many families establish for the benefit of individuals with special needs. One of the most common is a third-party special needs trust, which is created by someone who wants to leave money for a dependent with special needs but doesn't want that person to lose out on government benefits. The trust can be established by a will or created during the benefactor's lifetime. The creators of the trust appoint a trustee who has discretion over when and how funds are distributed. The trustee cannot distribute money directly to the dependent, but they can pay for certain items and services not covered by the dependent's monthly Supplemental Security Income (SSI) for disability. Upon the death of the dependent, whatever assets are left in the trust can be distributed according to the creator's wishes as specified in the terms of the trust.

A third-party special needs trust can be used in conjunction with an ABLE account, so families needn't choose one or the other.

Some families also use a first-party special needs trust, which is designed for individuals with special needs who come into money through an inheritance, a settlement, or other unexpected means, and are under age 65. These trusts are designed to ensure that the money doesn't jeopardize means-tested eligibility for government benefits.

Least common is a pooled trust, which allows nonprofit organizations to set up and manage first-party and/or third-party pooled special needs trusts for the benefit of any number of people with special needs.

For a list of nonprofits that offer this option, visit the Academy of Special Needs Planners website.

Consider using this guide to understand other aspects of planning for your loved ones.

Bottom line

All estate plans need to evolve over time to keep pace with changes in people's lives and financial situations. Each of these types of trusts come with their own benefits and limitations. Whether a special needs trust is an appropriate solution and, if so, which type is best suited for your particular situation and that of your loved one, is best discussed with an experienced attorney. And no matter which type you choose, try to build some flexibility into your plan. To make sure your plan stays current, review it every 3 to 5 years, or whenever your life or your family changes in a major way. That way you can be confident that your loved ones will be cared for when you're no longer here to look after them financially.

For a first-person account of planning, see Viewpoints: Facing the impossible as a parent of a special needs child.

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