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Military retirees can now use special needs trusts for SBP payments

Military families with special needs children face a number of difficulties when planning for their future financial security. However, a new law now allows military retirees more flexibility and peace of mind with the way their Survivor Benefit Plan (SBP) can be paid upon their passing.

The SBP allows retired military members to designate up to 55 percent of their retirement pay to eligible children, spouses or other beneficiaries. Under the Disabled Military Child Protection Act, military parents can now provide survivor benefits to a disabled child via a special needs trust. Although the Act was passed in December 2014, the Department of Defense did not issue a guidance on how to implement SBP payments to a legally established special needs trust until a year later.

Previously, military families faced the challenge of being unable to assign SBP payments to a trust. The funds had to be designated to an actual person, whether it was the beneficiary, a guardian or representative payee.

As a result, military retirees with special needs children were reluctant to select their child as the beneficiary. They feared the SBP payments could potentially affect the child’s eligibility for government benefit programs such as Medicaid or Supplemental Security Income. With the new policy, both SBP support and eligibility for government benefits can be protected with a special needs trust.

Military families need to think about the long-term impact when designating survivor benefits for a disabled child. When considering the use of a special needs trust for SBP payouts, families should consult a knowledgeable special needs planning attorney to ensure the correct type of trust is used in their plan and that it is in compliance with federal and state laws.