Personal Finance (Not Investing) • Funding an Able Account from a Special Needs Trust - A Tax Question

Resurrecting this issue again. I’ve been on a goose chase between ChatGPT and Grok about whether and what expenses, as well as transfer to ABLE, are considered distributable net income (DNI). ChatGPT says that discretionary expenses like certain medical expenses, as well as transfers to ABLE, are not DNI. Grok said they were but then kind of backtracked. I traced to the sources about ABLE, and there is really no source they found that says ABLE contributions aren’t DNI. ChatGPT infers it because it is a contribution and related to Subchapter J - whatever that is.

I would not consider either models conclusion to be definitive.

I started out assuming that qualified expenditures paid out of an SNT, as well as transfers to ABLE, were DNI. Now it isn’t so clear to me.

There are probably too many nuances for each individual case, and the models seem to be trying to answer how the money from a trust or from an able account can be spent to not impact a beneficiary's state benefits. Money moved from a Trust to an Able account essentially hasn't been used for anything yet.

I think if we keep it simple in that DNI is any income the trust makes in a year that can be distributable to the beneficiary. We can get into the nuances of capital gains but for simplicity, let's consider all income as DNI.

Trust income has two ways to leave the trust. As a distribution to the beneficiary or as an operational expense of the Trust (maybe a lawyer or a tax advisor or a management fee). I think we can all agree that contributing to an Able account is not a Trust expense, so the only thing left for it to be is a distribution to the beneficiary. What else could it be?

For DNI distributions to the beneficiary for things beyond the Able account, it's also a distribution from the Trust. From a tax perspective, it doesn't matter what that money is used for but for following the purpose of the Trust, you won't want it to be for something that could negatively impact the beneficiary's government benefits. Contributions to an Able account from a trust won't do that. If the Trust allows you to distribute more than the total DNI to the beneficiary (either directly or into the Able account) the amount distributed beyond the DNI is not taxable because it's not income. It may show up on the beneficiary's K1 to show the total distributed amount but only the distributed income is taxable to the beneficiary.

Statistics: Posted by geobrick — Fri Feb 06, 2026 1:50 pm — Replies 37 — Views 3447

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