Ch8 – Estate Planning Issues For Special Needs Families

Question 1

ALL resources available to the SSI and Medicaid applicant will affect the eligibility tests regardless of the age of the applicant (even parent’s assets). List the SIX items that are excluded from a resource test.

Answer 1

1) principal residence
2) cash value life insurance less than $1,500
3) one vehicle used for transportation
4) burial spaces and contracts held for the individual or family
5) household and personal items
6) money to pay educational expenses

Question 2

A power of attorney is a written document where the principal grants the attorney-in-fact the ability to act on behalf of an incapacitated principal. Identify the FOUR types of powers.

a) Nondurable Power of Attorney
b) Durable Power of Attorney
c) Springing Power of Attorney
d) General or Special Power of Attorney

Answer 2

a) Nondurable Power of Attorney - does not remain operable through incapacity
b) Durable Power of Attorney - remains operable through incapacity
c) Springing Power of Attorney - operable when an event occurs
d) General or Special Power of Attorney - extent or power

Question 3

If an individual is already receiving government benefits, they are automatically eligible to establish an ABLE account. What are the thresholds for the resource test limits?

Answer 3

The first $100K is exempted from the Social Security Disability Income individual resource test limit. If the funds exceed $100K, eligibility for Social Security Disability Income benefits is suspended and the individual ceases to receive monthly SSI income. Medicaid is NOT affected by the amount of the funds in the ABLE account. Although, most states have a Medicaid pay-back provision when the individual passes away.

Question 4

The general power of appointment is the…

The special power of appointment is the…

Answer 4

a) the unlimited right to appoint property to anyone
b) the right NOT TO appoint property to certain people (etc - kids)

Question 5

What is a Special Needs Trust?

Answer 5

Allows funds to be set aside for special needs care without disqualifying the individual from governmental benefits as long as the funds are used for expenses NOT already covered by governmental benefits or another source.

Question 6

What FOUR types of distributions from a Special Needs Trust would be treated as income and reduce the beneficiary’s SSI or Medicaid benefits?

Answer 6

food

medical cost

shelter

cash

Question 7

What is the age requirement a first party Special Needs Trust?

Answer 7

under 65

Question 8

The ILIT created for use as a third-party Supplemental Needs Trust (SNT) for a special needs beneficiary should not provide…

Answer 8

a Crummey withdrawal power for the special needs beneficiary due to resource testing.

Question 9

This document addresses the future well-being and fulfillment of a disabled individual’s living situation, education, religion, employment, and social settings.

Answer 9

Letter of Intent

Question 10

This document indicates a client’s intentions if the client lacks legal capacity to make decisions (including health care) for himself or herself.

Answer 10

Living Will (not valid in all states)

Question 11

Name the THREE government programs for individuals with disabilities.

Answer 11

a) Medicaid (needs based on resource test)
b) Supplemental Social Security (needs based on resource test)
c) Social Security Disability Income (not needs based)

Question 12

What are ineffective and effective planning strategies for government benefits?

ineffective (2)

effective (3)

Answer 12

ineffective

1) transferring resources out of disabled individual’s name because of lookback periods lasting 3-5 years
2) gifting to a disabled individual because of Medicaid and SSI disqualification

effective

1) Special Needs Trust (counted as resources for testing purposes)
2) UGMA/UTMA accounts (not counted as resources until after the age of majority)
3) ABLE Accounts (_NOT_ counted as resources for testing purposes)

Question 13

When will benefits from a Uniform Gift to Minors Account (UGMA) be considsered income for SSI qualification?

Answer 13

When the beneficiary reaches the age of majority. Any time prior, regardless of the reason, is treated as income.

Question 14

Define the THREE forms of a Special Needs Trust.

a) first party
b) third party
c) pooled trust

Answer 14

a) first party – created by guardian, family member, or a capacitated beneficiary using the disable individual’s assets
b) third party – created by a donor using the donor’s assets
c) pooled trust – run by non-profit organizations to benefit of multiple individuals with special needs

Question 15

A requirement to reimburse Medicaid when a special needs beneficiary dies with leftover or remaining trust funds.

Answer 15

payback trust

Question 16

What is an alternative to the payback trust provision following a special needs beneficiary’s death?

Answer 16

Remaining assets can be bequeathed or passed to designated family beneficiaries.

Question 17

What happens to the assets of a pooled Special Needs Trust AFTER a beneficiary dies?

Answer 17

The assets remain in the trust for the other beneficiaries.

Question 18

What is the purpose for using a third party Special Needs Trust?

Answer 18

Designed as part of the donor’s estate plan to receive gifts that can help a family member with special needs while the donor is still living and to manage the inheritance when the donor dies. There’s NO payback required and the donor has the option to bequeath remaining trust funds at their discretion.

Question 19

How are third party Special Needs Trust often funded?

Answer 19

ILITs

Question 20

Why is an ABLE account a good alternative to a Special Needs Trust?

Answer 20

• An ABLE account is more flexible and cost less to maintain.
• Although, a Special Needs Trust allows more control over the distribution because it can be controlled through the trust document terms.

Question 21

In comparing to an ABLE account to a Special Needs Trust, which account gives more discretion over the account funds?

Answer 21

ABLE accounts holders are more equipped to react to changing circumstances. While, a Special Needs Trust must manage the trust funds according to the trust terms.

Question 22

This law enables individuals with special needs and their families to establish a tax-free savings account that can be used to pay for certain “qualified disability expenses”.

Answer 22

Achieving a Better Life Experience Act of 2014 (ABLE ACT)

Question 23

This law allows disabled individuals to create their own self-settled first-party Special Needs Trust without having to rely on others.

Answer 23

Special Needs Trust Fairness Act