Alternatives to Special Needs Trusts

Special Needs Trusts are costly to administer. Consequently, there are some situations where it is responsible to explore more cost effective options, usually due to smaller asset amounts available to fund the trust. Alternative options are limited and subject to review by public benefit agencies.

Spend down the funds for exempt assets

In the month the beneficiary receives funds, public benefit authorities can count the amount received as income that can affect eligibility status and, if the assets have not been spent or placed in a qualified special needs trust prior to the beginning of the next calendar month, they will be counted as resources available to the beneficiary that can negatively impact public benefits.  Conversion of resources to exempt assets can be an important strategy for some beneficiaries.   Any exempt asset purchase(s) must be consistent with the applicable POMS and state Medicaid policy requirements for the exempt asset. It is advisable to do careful research to assure that the asset will not disqualify the beneficiary from receiving needed public benefits. For instance, SSI and some state Medicaid policies establish an upper limit on prepaid funeral arrangements while others do not. Again, check frequently since POMS and Medicaid requirements are subject to change without notice.

Evaluate value and reasonableness of purchasing needed exempt assets such as –

  • A home where the beneficiary will reside, needed repairs or improvements to beneficiary’s home, or needed modifications to make the beneficiary’s home accessible.
  • A vehicle or adaptations to a vehicle for transport of a disabled beneficiary.
  • A pre-paid funeral or burial plan for the beneficiary.

Prepayment of living expenses

Living on a fixed income is challenging and pre-payment of certain expenses can reduce the amount of funds quickly to re-establish eligibility for important public benefits. Pre-payment or pay-off of debt for the following expenses may be considered.

  • Rent, utilities, insurance premiums, a home warranty program, differential rate for a single room in a residential facility, or similar expenses for a reasonable amount of time.
  • Dental treatment services or dental insurance premiums
  • Educational expenses
  • Hygiene and care supplies that are necessary but not covered by Medicaid or Medicare such as but not limited to, diapers, orthotics, wheelchair batteries or repairs, compression hosiery, nutritional supplements or other similar supplies
  • Documented loans or consumer debt accumulated while awaiting eligibility or a settlement, including promised payment to family caregivers and documented with written agreements
  • Recreational or cultural expenses such as a concert series or membership at a gym or wellness center

It is important to advise that beneficiary and guardian, if applicable, that transfer of assets without commensurate value to the beneficiary, hiding assets, or failure to report income or assets can result in ineligibility, over-payment determination and allegations of fraud.

ABLE Accounts

An account made possible under the Stephens Beck Jr. Achieving a Better Life Experience Act of 2014 may be a viable alternative to a special needs trust for some individuals. Similar to College 529 savings plans, ABLE accounts are available as a financial planning tool for persons with disabilities and their families. An ABLE account can provide autonomy and independence.
An ABLE account allows savings to be set aside for the needs of a person with disability without affecting their eligibility for public means-tested benefits. The annual contribution cap for ABLE accounts is currently set at $15,000. Be aware that contributions to the 529 account exceeding the annual contribution limits will count as resources of the disabled individual, who may then lose public benefits. Requirements include:

  • Beneficiary must have become disabled prior to age 26
  • Only one account per person (more than one donor may contribute)
  • Medicaid payback, and
  • Utilization only for qualified disability expenses
If the individual is already the beneficiary of a 529 account or is a member of the 529-donor’s family, the 2017 federal tax bill provides that up to $15,000 annually may be rolled over from the 529 account into the ABLE account without tax or penalty. Another change in the tax legislation is that working individuals who are not covered by an employer’s retirement program may contribute to their own ABLE account, over and above the $15,000 limit. The individual’s contributions are capped at the Federal Poverty Level, which as of 2019 was $12,490.

State requirements vary. In Missouri, state income tax deductions for contributions to Missouri ABLE accounts may be taken up to $8,000 per participant and $16,000 for those married and filing jointly. Missouri ABLE accounts may accumulate no more than $462,000. For more information on the MO ABLE accounts, please visit

An ABLE account may be a good option when:

  • The beneficiary is self-sufficient and independent enough to manage the account themselves.
  • Smaller amounts are generally involved.
  • Third-party donors are not concerned that remainder funds will be paid back to Medicaid.
  • An individual after age 65 is subject to transfer penalties for contributions to a trust and seeks another means to conserve assets.
In many cases, an individual could benefit from both a special needs trust and an ABLE account.