Survivor Benefit Plan and Special Needs Trusts

The U.S. Department of Defense has recently published guidance for military parents regarding newly passed legislation that will allow them to assign Survivor Benefit Plan (SBP) payments (up to 55% of their retirement pay) to a special needs trust for the benefit of a dependent son or daughter with disabilities. Prior to the legislation being passed, military members had the ability to designate members of their families to receive a percentage of their retirement benefits after their death, however, a person with a disability who would receive income from a SBP would risk being disqualified from needed government benefits, such as SSI and Medicaid.

If SBP payments were to push the beneficiary (military member’s son or daughter with disabilities) beyond the Medicaid program’s stringent income and resource limits, the beneficiary could lose access to vital services provided by Medicaid, such as in-home caregiving, employment services, and/or residential support. This could greatly affect the individual’s quality of life. However, with the new legislation, the SBP can be deposited into a special needs trust, which prevents the funds from being counted when evaluating eligibility for Medicaid.

Here is what you need to know about assigning SBP payments to a special needs trust:

  • The trust the payments are being designated to must be a first party special needs trust, which means the trust is funded with assets belonging to the beneficiary . The trust must also require payback to Medicaid upon the beneficiary’s death, and the trust must be irrevocable once established. The flexible-spending trust with the Disability Foundation fulfills these requirements.
  • Assigning payments to a special needs trust may take place at any time during the life of the military parent. If the military parent arranged SBP coverage for the son or daughter but has since passed away, payment may be assigned to a special needs trust by a surviving parent, grandparent, or court-appointed guardian.
  • The military member or appropriate surviving person may either write a letter describing their intention to the Defense Finance and Accounting Service or complete the appropriate form (DD Form 2565).
  • The military member or appropriate surviving person must send a notarized statement certifying that the trust is a special needs trust for the sole benefit of a dependent child with disabilities and that the trust meets federal statute.

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