Special Needs Trusts vs. ABLE Accounts in New Jersey: Which One Is Right for Your Family?

by Jose D. Roman | Mar 18, 2026 | Estate Planning, Last Will and Testament, Medicaid, Medicaid Planning, Trusts

Families planning for a loved one with a disability in New Jersey often face the same question: should we set up a Special Needs Trust, open an ABLE account, or both? The answer depends on the individual’s age, the amount of money involved, and the kinds of expenses you need to cover.

Both tools are designed to preserve eligibility for public benefits like Medicaid and Supplemental Security Income (SSI) while allowing a person with disabilities to have access to additional resources. I’ve previously covered SSI Medicaid eligibility in New Jersey in detail. I’ve also given an overview of NJ ABLE accounts and how they can help a family save, while preserving SSI eligibility.  This post focuses on Special Needs Trusts and ABLE accounts, and how to choose between the two tools — or use them together.

What Is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal trust designed to hold assets for the benefit of a person with a disability without disqualifying them from means-tested government benefits. The key is that the trust — not the individual — owns the assets, so they do not count toward Medicaid or SSI resource limits.

There are two main types of Special Needs Trusts in New Jersey:

• First-Party: Funded with the beneficiary’s own assets — for example, a personal injury settlement or an inheritance received directly. Must be established before the beneficiary turns 65. Upon the beneficiary’s death, Medicaid must be reimbursed for benefits paid.
• Third-Party: Funded with assets belonging to someone other than the beneficiary — typically a parent, grandparent, or other family member. No age restriction. No Medicaid payback requirement upon death, which makes this the preferred option for family estate planning.

A trustee — often a family member, attorney, or professional trust company — manages the trust and makes distributions on the beneficiary’s behalf. Distributions must supplement, not replace, government benefits. This means trust funds generally cannot be used for food or shelter without impacting SSI and Medicaid eligibility.

What Is an ABLE Account?

An ABLE account (Achieving a Better Life Experience) is a tax-advantaged savings account available to individuals whose disability began before age 46 (increased from 26 effective January 1, 2026). New Jersey’s program is administered through NJ ABLE. For a full breakdown of eligibility and benefits, see my earlier post: NJ ABLE Accounts: Preserving Benefits for Individuals with Disabilities.

Key features of an ABLE account:

• Funds are not counted as assets for Medicaid or SSI purposes (up to $100,000 for SSI)
• Annual contribution limit: $20,000 in 2026 (with additional contributions allowed under the ABLE to Work Act for working beneficiaries)
• Total account balance cap: $305,000 in New Jersey
• The account holder — or their legal representative — controls the account directly
• Can be used for a broad range of qualified disability expenses, including housing, transportation, education, health, and more

When a Special Needs Trust Makes More Sense

A Special Needs Trust is typically the better choice when:

• The beneficiary is receiving a large sum — such as an inheritance, personal injury settlement, or life insurance proceeds — that exceeds ABLE account contribution or balance limits
• The disability onset was at age 46 or older, making the individual ineligible for an ABLE account
• A family member wants to leave money to a loved one with disabilities as part of their estate plan (a third-party SNT is the preferred vehicle here)
• Complex financial management is required and a professional trustee is needed
• The family wants to avoid the Medicaid payback requirement upon death — only possible with a third-party SNT

When an ABLE Account Makes More Sense

An ABLE account is typically the good choice when:

• The individual’s disability began before age 46
• The goal is to set aside modest amounts for day-to-day supplemental expenses without the cost and complexity of a trust
• The individual wants direct control over their own funds
• The family wants a simple, low-cost planning tool to complement existing benefits
• Contributions from family members, friends, or employers are expected over time

Can You Use Both?

Yes — and for many families, using both tools together is an effective strategy. A common approach:

• Establish a third-party Special Needs Trust in the parents’ estate plan to receive larger inheritances or life insurance proceeds
• Open an ABLE account for the beneficiary to handle smaller, recurring disability-related expenses with greater flexibility and direct access

The two tools complement each other well. The SNT handles larger, longer-term assets with professional oversight. The ABLE account provides the beneficiary with day-to-day financial autonomy without jeopardizing benefits.

Important Caution: Get it Right from the Start

Both Special Needs Trusts and ABLE accounts involve rules that — if not followed carefully — can inadvertently disqualify a person from Medicaid or SSI. With a Special Needs Trust in particular, improper distributions (for example, paying for food or rent directly) can reduce SSI benefits dollar for dollar.

Before establishing either tool, consult with a New Jersey elder law or special needs planning attorney to ensure the structure is right for your family’s situation.

Final Thoughts

There is no one-size-fits-all answer. The right tool depends on your loved one’s age, the assets involved, and your long-term planning goals. For families with a child or adult with disabilities in New Jersey, both a Special Needs Trust and an ABLE account deserve a place in the conversation. Read my earlier post on NJ ABLE Accounts for a deeper dive into how ABLE accounts work.