CEA Special Needs Trust Planning 5 — Questions and Answers
Question 1: A grandparent wants to leave money to a grandchild with a developmental disability without jeopardizing government benefits. Which planning option is MOST appropriate?
- Leave assets outright to the grandchild in a will
- Leave assets in a third-party Special Needs Trust (Correct answer)
- Create a joint account with the grandchild
- Fund an UTMA account for the grandchild
Correct answer: Leave assets in a third-party Special Needs Trust
A third-party SNT allows the grandparent to leave assets that supplement the grandchild's government benefits without counting as the grandchild's own resources.
Question 2: What happens if a Special Needs Trust distributes funds for food and housing expenses in excess of SSI's one-third reduction rule?
- The beneficiary receives a tax deduction
- The SSI benefit may be reduced up to the presumed maximum value amount (Correct answer)
- The trust is automatically revoked
- The beneficiary loses Medicare eligibility
Correct answer: The SSI benefit may be reduced up to the presumed maximum value amount
SSI can be reduced by up to the Presumed Maximum Value (PMV) when in-kind support and maintenance is provided, which equals one-third of the FBR plus $20.
Question 3: A beneficiary of a first-party SNT passes away with $150,000 remaining in the trust. The state Medicaid agency has a lien of $90,000. What happens to the remaining funds after the Medicaid payback?
- The remaining $60,000 passes to the state
- The remaining $60,000 can be distributed to remainder beneficiaries named in the trust (Correct answer)
- The remaining $60,000 reverts to the federal government
- The remaining $60,000 must fund a pooled trust
Correct answer: The remaining $60,000 can be distributed to remainder beneficiaries named in the trust
After satisfying the Medicaid payback requirement, any remaining assets in a first-party SNT can be distributed to remainder beneficiaries named in the trust document.
Question 4: Which of the following is a common mistake in SNT drafting that could jeopardize government benefits eligibility?
- Naming a nonprofit as successor trustee
- Giving the beneficiary the right to demand distributions at will (Correct answer)
- Including a spendthrift clause
- Authorizing the trustee to pay for recreational activities
Correct answer: Giving the beneficiary the right to demand distributions at will
If the beneficiary has a legal right to demand distributions, the trust assets may be counted as available resources, disqualifying them from SSI and Medicaid.
Question 5: Which professional credential is specifically associated with expertise in Special Needs Trust planning and disability financial planning?
- Chartered Financial Analyst (CFA)
- Special Needs Alliance Membership
- Certified Special Needs Advisor (CSNA) (Correct answer)
- Certified Public Accountant (CPA)
Correct answer: Certified Special Needs Advisor (CSNA)
The Certified Special Needs Advisor (CSNA) designation indicates specialized training in financial planning for individuals with disabilities, including SNT planning.
Question 6: Under the ABLE Act, what is the annual contribution limit (as of recent law) for an ABLE account, and how does it relate to the gift tax annual exclusion?
- $10,000, which is half the gift tax exclusion
- Equal to the annual gift tax exclusion amount (Correct answer)
- Twice the annual gift tax exclusion amount
- $50,000, regardless of the gift tax exclusion
Correct answer: Equal to the annual gift tax exclusion amount
The ABLE account annual contribution limit is tied to the federal gift tax annual exclusion amount, which is currently $18,000 (2024), allowing contributions from any number of people up to this annual cap.
Question 7: When a Special Needs Trust is created in a will, what major planning risk exists regarding the beneficiary receiving the inheritance before the trust is funded?
- The estate tax may eliminate the entire inheritance
- The probate process may result in assets passing directly to the beneficiary, disqualifying them from benefits (Correct answer)
- The will cannot name a trustee for an SNT
- Life insurance cannot be used to fund a testamentary SNT
Correct answer: The probate process may result in assets passing directly to the beneficiary, disqualifying them from benefits
During the probate process, assets could inadvertently be distributed directly to the beneficiary, counting as their resources and causing disqualification from means-tested benefits before the testamentary trust is fully established.
CEA Special Needs Trust Planning 5
A grandparent wants to leave money to a grandchild with a developmental disability without jeopardizing government benefits.
Which planning option is MOST appropriate?