Houston Estate Planning and Elder Law Attorney Blog
Families in Dallas County raising a child with a disability face a planning problem with two common answers that are not interchangeable. An ABLE account and a special needs trust both hold money for a person with a disability without costing that person Supplemental Security Income and Medicaid. They operate under different bodies of law, carry different ceilings, and end very differently when the beneficiary dies.
The federal Medicaid statute is what makes a special needs trust work. Under 42 U.S.C. § 1396p(d)(4)(A), a trust holding the assets of an individual under age 65 who is disabled is treated differently from an ordinary trust, provided it was established for that individual’s benefit by a permitted person and the State is repaid at the beneficiary’s death, up to what Medicaid spent, from whatever remains. An ABLE account comes from the tax code instead, at 26 U.S.C. § 529A, and its constraints are dollar constraints rather than structural ones.
Most Texas families with a disabled child end up using both tools. An ABLE account holds a modest, flexible balance the beneficiary can reach directly for everyday disability expenses. A third-party special needs trust holds the larger family inheritance, has no contribution ceiling, and carries no Medicaid payback obligation. Which one receives what depends on whose money it was, because Texas special needs planning treats a parent’s assets and the child’s own assets differently.
What an ABLE Account Holds for a Texas Beneficiary
An ABLE account is a tax-advantaged savings account under 26 U.S.C. § 529A for a person whose disability began before a statutory age cutoff, designed so the balance is disregarded for most means-tested benefit purposes. The money belongs to the beneficiary, who can spend it on qualified disability expenses without a trustee’s permission, which is the one feature a special needs trust cannot replicate.
Three limits shape what an ABLE account can do. Contributions from all sources combined are capped each year at the federal gift tax annual exclusion, which is $19,000 for 2026. The balance is disregarded for Supplemental Security Income only up to $100,000, and SSI is suspended rather than terminated while the excess sits there. Each state program sets its own overall account maximum, so a Texas family should confirm that figure with the program before enrolling. McCulloch & Miller, PLLC helps families in Dallas and across Texas fit those thresholds into a broader public benefits plan.
The age-of-onset gate changed this year, and it is worth rechecking. Under § 529A(e)(1)(A) the disability must have begun before the individual turned 46. That threshold was age 26 until the SECURE 2.0 Act amended it for tax years beginning after December 31, 2025. A family told years ago that a child did not qualify because the disability was diagnosed in their thirties may find the answer is now different.
What a Special Needs Trust Holds Under Federal Medicaid Law
A special needs trust is a trust that holds assets for a person with a disability in a way that supplements public benefits such as SSI and Medicaid rather than replacing them. Federal law recognizes more than one form. The first-party trust at 42 U.S.C. § 1396p(d)(4)(A) holds the beneficiary’s own money, which is what a settlement or an inheritance paid directly to the child becomes. The pooled trust at § 1396p(d)(4)(C) is established and managed by a nonprofit association, which maintains a separate account for each beneficiary while pooling the accounts for investment.
A first-party trust under subsection (d)(4)(A) may be established for the individual’s benefit by only the following:
- the individual
- a parent
- a grandparent
- a legal guardian
- a court
That last category is why guardianship and trust work often move together. A court-established trust for a Dallas County resident would come before one of the county’s three statutory probate courts.
The form most parents actually need is the third one. A third-party special needs trust holds the parents’ own assets, never the child’s, and is not a (d)(4)(A) trust at all. Because the money was never the beneficiary’s, the payback rule that defines a first-party trust does not attach to it. The choice among the trust types available under Texas law drives both what the trust can hold and who takes what is left.
McCulloch & Miller has practiced Texas estate planning and elder law for more than 35 years, and Thomas W. McCulloch is a member of the National Academy of Elder Law Attorneys.
The Contribution Ceiling Is the First Real Divider
The annual contribution cap decides whether an ABLE account can carry a plan by itself. A family setting aside a few thousand dollars a year for transportation and adaptive equipment can fund that through an ABLE account alone, with the beneficiary in direct control. A family leaving a six-figure inheritance cannot, because the $19,000 cap does not bend for a lump sum.
That is why so many plans use both. The trust receives the inheritance or settlement, and the trustee funds the ABLE account each year up to the cap, so the beneficiary has money on hand without a distribution request for every purchase.
Medicaid Payback Is Where the Two Tools Diverge
Section 1917(d)(4)(A) of the Social Security Act conditions the first-party trust treatment on the State receiving all amounts remaining in the trust at the beneficiary’s death, up to the total medical assistance paid on that beneficiary’s behalf under the state plan.
A third-party trust carries no such obligation, because the assets were never the beneficiary’s to begin with. Whatever remains at the beneficiary’s death can pass to siblings or to any other remainder beneficiary the parents name. That difference is usually the strongest argument against leaving an inheritance directly to a child with a disability.
ABLE accounts carry their own remainder rule, so the two vehicles should be compared on that point before either is funded. Resource rules for Supplemental Security Income are published by the Social Security Administration, and the trust provisions above appear in the text of Social Security Act § 1917.
Questions About an ABLE Account vs a Special Needs Trust in Texas
Can a Texas Family Use Both an ABLE Account and a Special Needs Trust?
Yes. Nothing in federal law forces a choice. The common structure routes the inheritance or settlement into a trust and has the trustee fund the ABLE account annually within the $19,000 cap, which gives the beneficiary spending money of their own.
Does Every Special Needs Trust Have to Pay Medicaid Back?
No. The payback requirement attaches to a first-party trust under 42 U.S.C. § 1396p(d)(4)(A), which holds the beneficiary’s own assets. A third-party trust funded with a parent’s assets is not a (d)(4)(A) trust and carries no payback obligation.
Who Can Establish a First-Party Special Needs Trust in Texas?
Under 42 U.S.C. § 1396p(d)(4)(A), the trust may be established for the benefit of a disabled individual under age 65 by that individual, a parent, a grandparent, a legal guardian, or a court.
Contact McCulloch & Miller About Special Needs Planning in Texas
McCulloch & Miller, PLLC helps families in Dallas and across Texas pair an ABLE account with the form of trust that fits where the money is coming from. Flat fees are available for much of this planning work, so you can know the cost before drafting begins. Call (713) 333-8900 or contact the firm’s Houston office to discuss how an inheritance should be routed for your child with a disability.