Colorado ABLE Accounts and Special Needs Trusts for Guardianship Families

When your child receives SSI or Medicaid, every dollar they own matters — not because money is scarce, but because having too much of it can disqualify them from the benefits that fund their housing, medical care, and community services. SSI's resource limit is $2,000 in countable assets. One birthday check from a well-meaning grandparent deposited into a regular bank account can push your child over the line and trigger a benefit suspension.

ABLE accounts and special needs trusts solve this problem, but they work differently and serve different situations. If you're a Colorado family navigating guardianship or its alternatives, understanding both tools is essential to protecting your child's financial future without jeopardizing their benefits.

ABLE Accounts: The Simpler Option

Colorado participates in the national ABLE program, which allows eligible individuals with disabilities to save money in a tax-advantaged account without it counting against SSI or Medicaid resource limits — up to $100,000 for SSI purposes. (Medicaid eligibility continues even above $100,000.)

Eligibility requirements:

• Disability onset before age 46 under rules effective January 1, 2026
• Receiving SSI or SSDI, or able to self-certify a qualifying disability
• One ABLE account per person — you can open it through any state's program, not just Colorado's

What ABLE accounts can pay for:

The funds must be used for "qualified disability expenses" — a broad category that includes education, housing, transportation, health and wellness, assistive technology, employment support, legal fees, and basic living expenses. Most things that improve your child's quality of life qualify.

Contribution limits:

Annual contributions are capped at $20,000 per year in 2026 from all sources combined (indexed to inflation). If the account holder has earned income and doesn't participate in an employer retirement plan, they may contribute an additional amount up to the federal poverty level for a single person.

Key advantage: ABLE accounts are simple to open, self-directed, and don't require an attorney. The designated beneficiary manages the account, or a parent or other authorized signer may manage it on the beneficiary's behalf.

Special Needs Trusts: For Larger Amounts

When the amounts involved exceed what an ABLE account can handle — a personal injury settlement, an inheritance, or significant family gifts — a special needs trust (SNT) provides the necessary protection.

First-party (self-settled) SNT: For a beneficiary under age sixty-five, this trust is funded with the disabled person's own money (a settlement, an inheritance received directly). It must include a Medicaid payback provision — when the beneficiary dies, remaining funds repay Medicaid for services provided during their lifetime. It must be established by a parent, grandparent, guardian, or the court; the beneficiary cannot establish it directly.

Third-party SNT: Funded by someone else's money — parents, grandparents, family members. No Medicaid payback requirement. Can be established during the grantor's lifetime or through a will. Remaining funds pass to any beneficiary the grantor chooses.

What SNTs can pay for:

Like ABLE accounts, SNTs pay for supplemental needs — things that SSI and Medicaid don't cover. The trustee must avoid making cash distributions directly to the beneficiary, which would count as income. Instead, the trustee pays vendors directly for goods and services.

Key advantage: No contribution caps, no account balance limits. An SNT can hold millions without affecting benefit eligibility.

When to Use Each

Many families use both. An ABLE account handles routine savings and day-to-day supplemental spending, while a special needs trust holds larger assets and provides long-term financial security.

What Happens to a Custodial Account at 18

If you set up a UTMA or UGMA custodial account for your child, Colorado custodianships generally continue until age twenty-one rather than ending automatically at eighteen. When the custodianship ends and the balance becomes your child's asset, the full balance can be a countable asset for SSI purposes.

Options for handling this:

• Spend down the account on exempt assets (a vehicle, prepaid funeral, household goods) before the custodianship ends
• Transfer to an ABLE account — up to the annual contribution limit per year
• Establish a first-party SNT — the court can authorize this transfer if your child is under guardianship or if you petition specifically for this purpose

Don't leave a custodial account unplanned as it approaches its termination date. That's one of the most common ways families accidentally trigger an SSI overpayment.

The Guardianship Connection

If your child is under guardianship or conservatorship, confirm who is authorized under the court order and the ABLE program's rules before opening or managing an ABLE account. For a special needs trust, a guardian can petition the court to establish a first-party SNT using the ward's own funds.

But here's what many families don't realize: you don't need guardianship to open an ABLE account. The designated beneficiary can manage it, or a parent or other authorized signer can manage it on the beneficiary's behalf, subject to the program's rules. If financial management is the primary concern, these tools may handle the need without court intervention.

The Colorado Adult Guardianship & Alternatives Guide includes a financial planning worksheet that helps you map your child's assets, benefits, and financial management needs to the right combination of tools — ABLE account, SNT, representative payee, or conservatorship.

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