CEA Special Needs Trust Planning 2 — Questions and Answers
Question 1: Which type of Special Needs Trust is funded with assets that belong to a third party, such as a parent or grandparent?
- First-party SNT
- Third-party SNT (Correct answer)
- Pooled trust
- Testamentary SNT
Correct answer: Third-party SNT
A third-party SNT is funded with assets owned by someone other than the beneficiary, such as an inheritance from a parent.
Question 2: What is the primary disadvantage of a first-party Special Needs Trust compared to a third-party SNT?
- It cannot pay for medical expenses
- It must include a Medicaid payback provision (Correct answer)
- It requires court approval to establish
- It cannot be revoked by the grantor
Correct answer: It must include a Medicaid payback provision
First-party SNTs funded with the beneficiary's own assets must include a Medicaid payback provision that reimburses the state upon the beneficiary's death.
Question 3: Under current law, what is the age limit for establishing a first-party (d)(4)(A) Special Needs Trust without court involvement?
- Under 55
- Under 65 (Correct answer)
- Under 62
- Under 70
Correct answer: Under 65
A first-party SNT under 42 U.S.C. § 1396p(d)(4)(A) must be established before the beneficiary reaches age 65.
Question 4: Which of the following expenses is generally APPROPRIATE for a Special Needs Trust to pay?
- Monthly cash allowances exceeding SSI limits
- Supplemental education and recreational activities (Correct answer)
- Rent paid directly to the beneficiary
- Regular grocery purchases counted as in-kind support
Correct answer: Supplemental education and recreational activities
SNTs should pay for supplemental items like education and recreation that enhance quality of life without replacing government benefits.
Question 5: What is a 'spendthrift clause' in a Special Needs Trust?
- A provision limiting how much can be spent each month
- A provision preventing creditors from reaching trust assets (Correct answer)
- A clause requiring court approval for large disbursements
- A provision that restricts the trustee's investment choices
Correct answer: A provision preventing creditors from reaching trust assets
A spendthrift clause protects trust assets by preventing creditors of the beneficiary from attaching or garnishing trust funds.
Question 6: Which of the following individuals CANNOT serve as the trustee of a Special Needs Trust?
- A corporate bank or trust company
- A sibling who is a licensed attorney
- The beneficiary with a disability (Correct answer)
- A nonprofit organization
Correct answer: The beneficiary with a disability
The beneficiary with a disability generally cannot serve as their own trustee because doing so would give them control over the assets, which could disqualify them from means-tested benefits.
Question 7: A pooled Special Needs Trust is administered by which type of organization?
- A private law firm
- A state agency
- A nonprofit organization (Correct answer)
- A family member designated as trustee
Correct answer: A nonprofit organization
Pooled trusts under 42 U.S.C. § 1396p(d)(4)(C) are established and managed by nonprofit organizations that pool resources for investment purposes.
CEA Special Needs Trust Planning 2
Which type of Special Needs Trust is funded with assets that belong to a third party, such as a parent or grandparent?