ABLE Accounts and Trust Options for Structured Settlements

What is a structured settlement?   

A structured settlement is a legal financial or insurance agreement. It is used to resolve a personal injury or wrongful death claim where the injured person or their family receives regular payments instead of a lump sum.  These payments may be made monthly, quarterly, twice a year, or once a year over a set period.  

Structured settlement payments usually do not affect Social Security Disability Insurance (SSDI) benefits. An exception may apply if the payments are workers’ compensation, which can reduce SSDI benefits in most states. It is most important to understand how these payments affect means-tested benefits like Supplemental Security Income (SSI), Medicaid, andMedicare premiums. Settlement payments could be treated as income or as an asset. Tools like a special needs trust, pooled trust, and/or an ABLE account can protect a beneficiary’s eligibility for these programs.  

What are the advantages of a structured settlement?  

Structured settlements provide financial security for medical care and other expenses for injured persons and their families. They are generally not taxed under federal law, although punitive damages and interest may be taxed.  

Regular payments create a stable source of income that can be used to budget. A well-designed settlement agreement may direct payments for future medical and disability expenses. When coordinated with trusts or other planning tools, this approach can help reduce countable income and resources for SSI and other means-tested benefits. 

The key planning goal is to find a way to prevent structured settlement funds from being treated as countable income or resources for SSI or Medicaid beneficiaries. A court ordered, legally assignable, irrevocable structured settlement payment may be designed so that payments are directly deposited into a first party special needs trust, pooled trust, or an ABLE accountparticularly when the payments are intended to supplement but not supplant public benefits. 

What are Special Needs (SNT) and Pooled Trusts (PT)? 

A first party SNT or PT is created with assets belonging to an individual with a disability, who becomes the “beneficiary.” Trust assets usually include personal injury settlements, retroactive benefits, insurance policies, a house, or an inheritance. For first party PTs and SNTs, the person must be under age sixty-five (65) at the time that the trust is created. There are no annual contribution limits for a trust account. 

Once set up, a SNT or PT may contribute funds to the ABLE account (up to the annual contribution limit) without those funds being treated as income. This coordination can help preserve eligibility for means-tested programs such as SSI and Medicaid.  

What is an ABLE account?  

An ABLE account is a tax-advantaged savings and investment account for a person who has a disability that began before age 46. ABLE funds, up to the ABLE plan’s balance limit, are not a counted resource for Medicaid, Medicare, Free Application for Student Aid (FAFSA), Housing Urban Development housing assistance (HUD), or Supplemental Nutrition Assistance Program (SNAP) or SSDI. 

Up to $20,000 may be deposited into an ABLE account in 2026. Employed ABLE account owners who do not have contributions made to an employer sponsored retirement plan may deposit even more. Visit the ABLE NRC for contribution limits as they are subject to change each calendar year. The contributions are not counted by benefit programs unless they are earnings or other income of the account owner. In general, court ordered irrevocable structured settlement payments which are directly deposited into the ABLE account are not counted as income for SSI beneficiaries. This applies when the account owner cannot change the court’s decision. SSA would review the specific language in each court order, to determine whether the income can be disregarded.  ABLE investment growth is not taxable and is not counted as income for SSI or Medicaid or other means-tested benefits when used for qualified disability expenses. An SSI beneficiary’s ABLE savings/investment balance up to $100,000 does not count towards the individual’s $2,000 resource limit. 

Conclusion: Coordinating Settlements and Benefits.  

A structured settlement can be a powerful tool for providing long-term financial security after an injury. The true value depends on careful coordination with public benefit programs. Without proper planning, settlement funds may unintentionally put eligibility for means-tested benefits such as SSI and Medicaid at risk, unless the funds are used to “spend down.” By integrating structured settlements with special needs trusts, pooled trusts, and ABLE accounts, a beneficiary and their family can protect critical benefits while saving funds for future care and quality-of-life needs. The ABLE Account, Special Needs and Pooled Trust Comparison Chart can help with understanding the intersection of these tools. Early planning with experienced legal and financial professionals is essential to ensure compliance with applicable laws. A plan can be prepared that supports both financial stability and public benefit eligibility over the long term. 

Structured Settlement “To Do” Checklist: 

• Identify the means-tested benefits the person receives now or may need in the future.  

• Review the income and resource limits of each benefit program. 

• Document the person’s financial goals. 

• Decide if the funds should be spent/used to support the person’s financial goals. 

• Confirm whether the person either has or is eligible to open an ABLE account. 

• Identify the types of trusts that may be helpful and contact the Special Needs Alliance to discuss available options. 

• Determine whether the structured settlement includes payments to be directly deposited into special needs or pooled trusts or an ABLE account. 

• Report any personal injury settlement to Social Security Administration (SSA) and Medicaid within 10 days of receiving it. 

References: 

ABLE National Resource Center  

 What you should know about a lump sum structured settlement (ConsumerFinance.gov). 

How Workers’ Compensation and Other Disability Payments May Affect Your Benefits (SSA) 

National Structured Settlements Trade Association 

Glossary of Terms: 

Beneficiary. Individual who receives benefits. 

Coordination. Planning. 

Eligibility. Ability to qualify.  

Lump sum. A single payment. 

Means Tested Benefits. These are benefits based upon need. Eligibility may be based upon countable income and assets or resources.  

Spend down. Spending savings, which are over the needs-based savings limit, so that these benefits are not affected. A spend down may help a person become eligible for means tested benefits.