Comparing the Advantages: ABLE Accounts vs. Special Needs Trusts

The COVID-19 pandemic and near zero long term Treasury rates have required both structured settlement professionals and settlement planners to re-think how they market and how they sell structured settlement annuities.

Serena Fitchard, nicely summarized a more expansive structured settlement sales approach during a recent National Structured Settlement Trade Association (NSSTA) webinar: “structured settlements serve a greater need than just a rate of return.”

Of course, Serena’s general structured settlement sales observation is best applied, and specifically tailored, to suitable clients and applications – one of which may now be “direct funding” of ABLE accounts using a workaround” solution proposed by special needs attorney David Lillesand.

Structured settlements represent a perfect potential funding source for ABLE accounts. From both a public policy perspective and from more practical administrative considerations, direct payment of structured settlements into ABLE accounts provide a convenient settlement planning solution for small to medium size cases. For larger cases, a second structured settlement can fund a complementary special needs trust.

Equally important, the “direct funding” structured settlement ABLE account sale is not (or need not be) an “investment” or “interest rate” based sale. The sale can be based instead upon the convenience, dependability and security of the structured settlement payment. However, the sale also requires an understanding of, and focus upon, avoiding Social Security income rather than income exclusions under the Internal Revenue Code.

Since The ABLE Act created IRC 529A in 2014, ABLE accounts have become popular financial and settlement planning tools for qualifying disabled individuals.

The ABLE Act allows states to create tax-advantaged savings programs for eligible people with disabilities. Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses.

49 states have passed legislation to implement ABLE and most ABLE programs accept qualified individuals regardless of their state of residence. Here are some recent ABLE statistics (as of December 31, 2019), provided by Doug Jackson, Deputy Director of Ohio’s STABLE Account, the first and largest state ABLE program:

  • Total number of ABLE accounts in the nation:  56,632
  • Total number of STABLE Accounts: 14,267
  • National ABLE Assets Under Management:  $ 354,803,932
  • STABLE Account Assets Under Management:  $89,336,519

Comparing ABLE Accounts and SNTs

The remainder of this article reviews the comparative advantages of ABLE accounts and special needs trusts (SNTs) recognizing that self-settled and pooled trusts (both first party SNTs) can also be further differentiated.

Before considering the differences between ABLE accounts and SNTs, it is important to note their similarities. Both ABLE accounts and SNTs represent statutory “safe harbors” that should be considered as part of the settlement strategy for many serious personal injury lawsuits when there is a need to preserve SSI and Medicaid. Medicaid payback rules apply to both although the payback rules are more favorable for ABLE accounts.

There are at least four primary advantages for SNTs compared with ABLE accounts.

    1. To be eligible for an ABLE account, the beneficiary must have become disabled prior to their 26th birthday. The only age limitation applicable to SNTs is limited the origination of self-settled SNTs to individuals under age 65 – which does not apply to ABLE accounts.
    2. ABLE accounts are subject to annual contribution and overall limits whereas SNTs are not.
    3. An individual is limited to one ABLE account but can have an unlimited number of SNTs.
    4. SNTs generally provide professional investment management and administration whereas ABLE accounts generally do not.

Balancing those SNT advantages are the following comparative advantages for ABLE accounts:

  • Set-up – unlike a SNT, where an attorney is generally required to draft the trust document itself or the joinder agreement for a pooled trust, and to prepare notices for the SSA and Medicaid, a settlement payee or payee’s family member can set up an ABLE account.
  • Reporting – State ABLE funds report individual account deposits and disbursements to the SSA whereas SNT beneficiaries are responsible for reporting SNT transactions.
  • Costs and Expenses – Set-up fees and management fees charged by state funds for ABLE accounts, which can vary by state and may be zero, are modest compared with self-settled or even pooled trusts. Generally, the only ongoing cost of an ABLE account is the basis points investment fee by the managing financial institution which is usually less than one-half of one percent.
  • Certifying “disability – The SSA definition for “disability” used for SNTs is much more restrictive than the “disability certification” rules for ABLE account qualification.
  • Safe harbor” status – All SNTs are reviewed by SSA Regional SNT Review Teams having authority and discretion to deny SNT safe harbor status – although pooled trusts do not require repeat individualized approvals. No individualized federal benefit agency approval is needed to establish the validity of an ABLE account as long as the ABLE beneficiary places funds in a previously-approved state-sanctioned account.
  • Access to Funds – A trustee, who acts as the gatekeeper between the trust funds and trust beneficiary, administers SNT assets and pays directly for goods and services for the beneficiary. The disabled ABLE account owner, or his designated representative, may directly use ABLE account funds to pay for the beneficiary’s goods and services as they are needed.
  • Sole benefit rule – SNTs must be established for one single individual, for his or her sole benefit. In operating SNTs, however, the sole benefit distribution rules have been replaced so that distributions must be for the “primary” benefit of the individual (the April 2018 change in the POMS). By comparison, for ABLE accounts, the term QDEs has been interpreted by the most recent SSA POMS much more broadly to include basic living expenses.
  • Approval for Distributions – Some states require advance welfare department approval prior to large SNT distributions. No such requirements exist for ABLE account distributions.
  • Funeral and burial expenses – SNTs generally are required to stop all distributions upon the death of the beneficiary, except limited trust-windup administrative and legal fees and taxes, before repayment of Medicaid payback amounts. By comparison, the funeral and burial expenses of an ABLE account owner are treated as Qualified Distribution Expenses (QDEs) and may be paid after death, along with other QDEs, but before repayment of Medicaid payback amounts.
  • Federal benefit programs – SNTs preserve eligibility for two federal benefit programs, SSI and Medicaid. ABLE accounts preserve eligibility under eleven means-tested federal programs.
  • State Medicaid lien – SNTs generally must repay states for all Medicaid assistance from the beneficiary’s birth to death whereas ABLE accounts are only responsible for reimbursement only after establishment of the ABLE account. Several states have either taken action to waive the Medicaid payback for ABLE accounts or are currently considering such a waiver.

For more detailed discussion of ABLE accounts and SNTs, see Chapter 15 of “Structured Settlements and Periodic Payment Judgments.


Whether utilized as a separate settlement planning tool in smaller cases or considered in collaboration with self-settled or pooled trusts in catastrophic cases, ABLE accounts offer a valuable method for helping qualified disabled injury victims supplement their personal injury settlements with both tax advantages and means-tested government benefits. Adding direct funded structured settlements represents an ideal combination that plaintiff attorneys, structured settlement professionals and settlement planners should begin to discuss and explore in more cases.

Please Note: this article was edited on September 1, 2020 to correct prior mistakes under discussion of the “sole benefit rule.

TAX & LEGAL DISCLOSURE:  Information contained herein is not intended to be case specific tax or legal advice nor is it intended or written to be used, and cannot be used, for the purpose of avoiding any tax or social security penalties.  You should seek advice based on your particular circumstances from an independent tax or legal advisor if you have tax or legal related questions.