Funding a Special Needs Trust With a Survivor Benefit Plan

An estimated 20 percent of military-connected children have special needs, according to the National Institutes of Health. With a Survivor Benefit Plan (SBP), military members can provide for their children with disabilities while helping them maintain access to other benefits.

Under the National Defense Authorization Act of 2015, members can designate their child’s special needs trust (SNT) as their SPB’s beneficiary. A special needs trust is an estate planning tool that provides funds to support a person with disabilities. It also allows them to qualify for public assistance, such as Supplemental Security Income (SSI) and Medicaid.

What Are Survivor Benefit Plans?

When military service members die while on active duty or during retirement, Survivor Benefit Plans provide financial support to their surviving spouses and dependent children. Beneficiaries receive monthly annuity payments.

For some service members, coverage is automatic and free. This includes individuals who die on active duty and reserve component members who pass away because of a service-connected cause in inactive duty training.

Upon retirement, active duty members and reserve component members may opt into SBP coverage. To be eligible, they must have at least 20 years of qualifying service for reserve retired pay. The program ensures their families continue to receive income should they pass away and lose retirement benefits.

Retiring members pay premiums to join the program. The premiums come in part from their gross retired pay. Since these premiums subtract from gross retired pay, they are not taxable income.

The government also partially funds the premiums. Because the government also covers operating costs, the SBP is less expensive than traditional life insurance for many.

Retirees can choose annuity amounts up to 55 percent of their retired pay. They may select a lower annuity amount, for which they pay a lower premium.

Survivor Benefit Plan Beneficiaries

After a service member passes, the SBP delivers annuity payments to elected individuals, typically their spouse or dependent children.

Service members can choose among several beneficiary options upon retirement. In most cases, these decisions are final. They are changeable only in specific instances, like a change in marital status or the death of a beneficiary.

According to the Defense Finance and Accounting Service, eligible beneficiaries include the following:

• Spouse
• Spouse and dependent children, including those dependent because of age and disability
• Children only, with the spouse’s consent
• Former spouse
• Natural interest person, for those with no spouse or dependent children

For Military Members Who Have Children With Disabilities

An adult child with a disability is eligible as a dependent if the child became physically or mentally disabled before age 18, or age 22 if pursuing education. An additional option is to elect direct payment of an SBP annuity to a special needs trust for the child.

As mentioned earlier, a child with a disability may receive benefits like SSI and Medicaid. Income from an annuity might put the individual over program income and resource limits. This income increase could cause them to lose their benefits.

Service members who have a child with a disability can avoid this by electing for the annuity to go to their child’s SNT. Assigning the annuity payments to the trust can protect the child’s continued receipt of benefits.

How Does a Special Needs Trust Work?

Special needs trusts (or supplemental needs trusts) serve as funds that can benefit individuals with disabilities. A properly drafted SNT provides financial support to a person with a disability while keeping them eligible for benefits. A trustee manages the trust funds and makes disbursements to the individual with the disability.

Strict spending rules govern special needs trusts. For example, to preserve SSI benefits, this type of trust cannot pay for things that SSI covers, like shelter. Assets in the trust can cover other expenses, however. These may include travel, recreation, legal services, insurance, home furnishings, uncovered medical expenses, and education.

Covering a Special Needs Trust Under a Survivor Benefits Plan

Currently, a military member or retiree can choose to cover a dependent child’s SNT in the following circumstances:

• The individual must have elected spouse and child or child-only coverage for a child with special needs.

• The dependent child with a disability must also have an established and certified first-party special needs trust or pooled SNT.

When an SBP benefits a dependent child with a disability, the direct payment can be changed to a special needs trust at any time before or after the military member’s death. The member can make the change during their lifetime. Or, after their death, a surviving parent, grandparent, or court-appointed legal guardian can designate the trust to receive the annuity payments.

Directing annuity payments to an SNT requires submitting the following documentation to the Defense Finance and Accounting Service:

• A statement of intent
• An attorney’s special needs trust certification
• The SNT’s name and tax identification number

Additional Assistance for Active and Retired Military With Children With Special Needs

Various other forms of support are available for retired and active military personnel with children with disabilities. These include the following:

• The Military and Family Support Office offers the Exceptional Family Member Program. This program provides community support, housing, and educational, medical, and personnel services to military families with special needs.

• U.S. Armed Forces Legal Assistance offices, available nationwide, give advice as well as local attorney referrals. The office can help families find attorneys who practice special needs law.
• An official Department of Defense website, Military One Source, is another resource for military families with children with disabilities. Military One Source offers support with special education, financial planning, and child care. Speak to a Military OneSource consultant by calling 800-342-9647.

Work With a Special Needs Planning Attorney

An attorney can help you decide whether assigning your Survivor Benefits Plan to a special needs trust for your child would be an appropriate strategy for your family. If your child does not yet have an SNT, an attorney can create one. Find a local, qualified special needs planning attorney today.