CEA Special Needs Trust Planning 4 — Questions and Answers
Question 1: A testamentary Special Needs Trust is created by which legal instrument?
- A revocable living trust
- A will (Correct answer)
- A durable power of attorney
- A court order
Correct answer: A will
A testamentary SNT is established through a will and takes effect only upon the death of the person who created the will.
Question 2: What is the primary advantage of establishing a Special Needs Trust as a standalone inter vivos trust rather than a testamentary trust?
- It avoids all estate taxes
- It can receive assets during the grantor's lifetime, including gifts and inheritances (Correct answer)
- It does not require a trustee
- It provides a step-up in cost basis for all assets
Correct answer: It can receive assets during the grantor's lifetime, including gifts and inheritances
An inter vivos SNT is created and funded during the grantor's lifetime, allowing it to receive contributions from multiple sources such as gifts, life insurance, and inheritances.
Question 3: Which type of trust can accept assets for multiple beneficiaries with disabilities, pooling investments while maintaining separate accounts?
- Third-party SNT
- First-party (d)(4)(A) trust
- Pooled (d)(4)(C) trust (Correct answer)
- Testamentary SNT
Correct answer: Pooled (d)(4)(C) trust
A pooled trust under (d)(4)(C) aggregates funds from multiple beneficiaries for investment purposes while maintaining separate sub-accounts for each individual.
Question 4: When naming a successor trustee for a Special Needs Trust, what is the most critical consideration?
- The successor must be a family member
- The successor must understand both disability law and the beneficiary's unique needs (Correct answer)
- The successor must be approved by Social Security
- The successor must be located in the same state as the beneficiary
Correct answer: The successor must understand both disability law and the beneficiary's unique needs
A successor trustee must understand the complex intersection of disability law, government benefits, and the individual beneficiary's circumstances to administer the trust properly.
Question 5: Under the SSI resource rules, what is the current individual resource limit that makes an SNT necessary for benefit preservation?
- $1,000
- $2,000 (Correct answer)
- $5,000
- $10,000
Correct answer: $2,000
SSI recipients are limited to $2,000 in countable resources for individuals, making an SNT essential for holding larger amounts without disqualifying the beneficiary.
Question 6: What is a 'trust protector' in the context of Special Needs Trust planning?
- An insurance policy that covers trust assets
- A third party with the authority to modify or oversee the trustee's actions (Correct answer)
- A government-appointed guardian for the beneficiary
- A court-ordered financial guardian
Correct answer: A third party with the authority to modify or oversee the trustee's actions
A trust protector is an independent third party given specific powers such as modifying trust terms, removing trustees, or adapting the trust to legal changes.
Question 7: Which situation most clearly demonstrates the need to coordinate SNT planning with Medicaid rules in a beneficiary's state?
- The beneficiary lives in a state that does not recognize trusts
- Medicaid rules vary by state, affecting what the SNT can and cannot pay for (Correct answer)
- All states have identical SSI rules eliminating coordination needs
- Medicaid is only federally administered, so state rules are irrelevant
Correct answer: Medicaid rules vary by state, affecting what the SNT can and cannot pay for
Medicaid is a joint federal-state program with significant state-by-state variation, requiring advisors to understand the specific rules of the beneficiary's state when planning SNT distributions.
CEA Special Needs Trust Planning 4
A testamentary Special Needs Trust is created by which legal instrument?