ABLE Accounts and Personal Injury Settlements

President Obama signed the ABLE Act into law in December, providing new savings options for disabled people.

The Basics

To better understand the potential role an ABLE account might play in a personal injury settlement, here are some guidelines contained in the Act:

• A person can only have one ABLE account.
• It must be established for a disabled individual whose disability onset was prior to the age of 26.
• There is an annual contribution limit, currently set at $14,000.
• If the account grows to more than $100,000, Supplemental Security Income (SSI) payments will be discontinued, but Medicaid remains intact.
• While the account balance remains below $100,000, gains in the account are not taxed.
• Distributions will not be taxed if made for qualifying disability-related expenses.
• Upon death, state Medicaid agencies must be repaid out of the account balance for any benefits provided to the beneficiary while the account was in existence.

While many aspects of an ABLE account sound like those of a Special Needs Trust, there are some distinct differences. Here are some notable ones:

• An ABLE account can be opened like a basic 529 Plan. There are no costs for legal fees associated with drafting a trust.
• A professional trustee is unnecessary, saving additional fees and costs.
• An ABLE account can pay for certain housing expenses that a Special Needs Trust may not cover without the risk of needs-tested benefit disqualification.

Applications

While ABLE has been approved at the federal level, each individual state will need to establish its own account infrastructure and guidelines. Like educational 529 plans, a 529A (ABLE) account will likely be managed by a certain investment management company specific to that state’s plan. For this reason, ABLE accounts will likely become reality sometime in 2016 or 2017. That being said, here are some possible applications of ABLE accounts in personal injury settlement planning:

• Small Settlements (disabled minors, less than $14,000)
  These could be settlements involving injuries to previously disabled children.
• Small to Medium Settlements
  Settlements for disabled minors where benefits could be structured to make ongoing annual contributions. Account balances above $100,000 would jeopardize Supplemental Security Income (SSI), but would not necessarily disqualify the individual for Medicaid eligibility.
• Large Settlements
  Settlements where the presence of an ABLE account may complement and provide additional flexibility when used in conjunction with a Special Needs Trust.

Moral of the Story: Right Tool for the Job

Effective settlement planning requires knowledge and a network of expert resources. Your Ringler representative can provide meaningful guidance when faced with a claim or lawsuit involving an injured child or young adult. When trying to reach a compromised settlement, the knowledge of your Ringler representative can often prove invaluable to reaching an agreement ... and creating a plan to help the family involved realize peace of mind. Have a case coming up where you may need your own personal Swiss army knife of the settlement world? Call your Ringler representative today.