Service Member Survivor Benefit Plans and Special Needs Trusts

by Debra A. Verni

On December 19, 2014, President Obama signed the Disabled Military Child Protection Act. This law allows a military parent to provide a survivor benefit for a disabled child and have it paid to a special needs trust for the child’s benefit. Until recently, service members were reluctant to name children with special needs as beneficiaries of their Survivor Benefit Plan (SBP) because they were concerned that any extra income received by the child would disqualify them from other government assistance.

The existing law provided that the SBP could only be paid to a “person” and the Defense Department took the position that “person” did not include a trust for a child with disabilities. However, the recent change in the law now permits service members to designate qualifying Special Needs Trusts as beneficiaries of their SBP benefits in place of a disabled child.  A qualifying Special Needs Trust (SNT) is a trust that is set up for the benefit of an individual with special needs that makes payments to supplement public benefits, such as Medicaid and housing assistance.  The trust must be created by a parent, grandparent, guardian, or the court, and must contain specific instructions to the trustee regarding distributions, management of the trust, and pay-back upon the beneficiary’s death.

Any service member enrolled in the SBP may designate an SNT as beneficiary by confirming the validity of the trust with the Social Security Administration and submitting the necessary paperwork to make the designation.  Retired service members or families of those who have died in the line of duty may also change their beneficiary to a newly created SNT in place of a disabled child.  Allowing service members to designate Special Needs Trusts as beneficiaries of their Survivors Benefit Plan is a significant benefit for families with children who have special needs.  However, if the SNT is improperly created or contains invalid terms, the SBP payment will be paid directly to the disabled child, potentially disqualifying them from important public benefits.  Therefore, it is important that both the Special Needs Trust and SBP designation be reviewed by an experienced special needs attorney to ensure that all parties and benefits are adequately protected. Notably, SBP payments continue for the lifetime of any disabled child.  An active duty service member who dies in the line of duty is also eligible for this plan if they have a qualifying spouse or minor child.  The inability to assign SBP payments to a special needs trust was one challenge facing military families that has at last been fixed.

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