PFS Special Education Support 3 — Questions and Answers
Question 1: A client wants to leave assets to a child with severe autism without jeopardizing government benefits. The BEST planning tool is:
- A Uniform Transfer to Minors Act (UTMA) account
- A third-party special needs trust (Correct answer)
- A joint checking account with the child
- A standard revocable living trust
Correct answer: A third-party special needs trust
A third-party special needs trust supplements government benefits without counting as a resource for Medicaid or SSI eligibility purposes.
Question 2: Under IDEA, the document that outlines the specific educational services a disabled student will receive is called the:
- 504 Plan
- Individualized Education Program (IEP) (Correct answer)
- Transition Support Agreement
- Disability Accommodation Form
Correct answer: Individualized Education Program (IEP)
An IEP is the legally binding document detailing special education goals, services, and accommodations for a student eligible under IDEA.
Question 3: When a first-party (self-settled) special needs trust is terminated, any remaining funds after the beneficiary's death must first be used to:
- Pass to the named remainder beneficiaries
- Fund an ABLE account
- Reimburse the state for Medicaid benefits paid (Correct answer)
- Pay federal income taxes owed by the trust
Correct answer: Reimburse the state for Medicaid benefits paid
First-party special needs trusts include a Medicaid payback provision requiring the state to be reimbursed for benefits paid during the beneficiary's lifetime.
Question 4: The annual contribution limit to an ABLE account from ALL sources (including the account owner) is tied to:
- The annual gift tax exclusion amount (Correct answer)
- The IRA contribution limit
- The HSA family contribution limit
- The 529 annual contribution limit
Correct answer: The annual gift tax exclusion amount
The base annual ABLE contribution limit equals the federal annual gift tax exclusion (currently $18,000 in 2024), though working beneficiaries may contribute more.
Question 5: A special needs child inherits an IRA directly from a grandparent. What is the primary financial planning concern?
- The IRA will be counted as an ABLE account
- Required minimum distributions may disqualify the child from SSI (Correct answer)
- IRAs cannot be inherited by disabled individuals
- The child must convert the IRA to a Roth immediately
Correct answer: Required minimum distributions may disqualify the child from SSI
RMDs from an inherited IRA count as unearned income and could push the child over the SSI income threshold, jeopardizing benefits.
Question 6: Which statement about pooled special needs trusts is CORRECT?
- They are only available in states with Medicaid waiver programs
- They are managed by nonprofit organizations and pool assets for investment purposes (Correct answer)
- They eliminate the Medicaid payback requirement for all beneficiaries
- They require a minimum contribution of $250,000
Correct answer: They are managed by nonprofit organizations and pool assets for investment purposes
Pooled special needs trusts are administered by nonprofits, with each beneficiary having a separate account but assets pooled for investment efficiency.
Question 7: A PFS advisor helping a family plan for a child with Down syndrome should recommend reviewing life insurance needs primarily to:
- Fund college expenses for the disabled child
- Replace income and fund a special needs trust if a parent dies prematurely (Correct answer)
- Cover the child's ABLE contribution limits
- Satisfy required minimum distribution rules
Correct answer: Replace income and fund a special needs trust if a parent dies prematurely
Life insurance on parents ensures that a funded special needs trust can continue supporting the child if the primary caregiver dies prematurely.
PFS Special Education Support 3
A client wants to leave assets to a child with severe autism without jeopardizing government benefits.
The BEST planning tool is: