Maximizing Military Survivor Benefit Plans

The Problem: Career military retirees have long been able to defer a portion of their retirement pay to provide an annuity for a surviving spouse or dependent children upon the retiree's death. However, naming a disabled child as a beneficiary of a Survivor Benefit Plan (SBP) sometimes caused the child to lose Medicaid and other public benefits. SBP considers a child is disabled if he or she is incapable of self-support because of a physical or mental disability which existed before the 18th birthday or which was incurred before age 22 while the child was a full-time student.

The Fix: Congress addressed this problem by enacting the Disabled Military Child Protection Act as part of the National Defense Authorization Act of 2015. Retirees may now designate a special needs trust for their disabled child as a beneficiary of their SBP. The SBP income will be paid directly to the trustee, so it will not count as income for Supplemental Security Income (SSI) or Medicaid. Military children with special needs will benefit from the SBP without losing valuable Medicaid services like group homes, job coaches or personal care attendants.

The Details: The SBP benefits must be paid to a "first party" (or "payback") special needs trust. Upon the child's death, funds remaining in the special needs trust will reimburse any Medicaid services provided to the child, before any other distributions are made from the trust.

A parent, grandparent, guardian/conservator or a court can create a first party special needs trust can be created for a disabled individual. The trust is funded with resources belonging to the disabled individual. Because the state is paid back upon the death of the disabled individual, parents should not leave an inheritance to a first party special needs trust. Parents can create a separate special needs trust as part of their estate plan to protect their child's inheritance.

Alternatively, parents can direct SBP benefits to an individual account in a "pooled" trust for disabled beneficiaries managed by a non-profit organization. The child will have his or her own separate account, but funds are "pooled" for investment purposes.

Next Steps: Military personnel considering SBP for a disabled child should work with an experienced elder law/special needs attorney to be sure that they have the right documents in their estate plan and that their benefits are properly directed. The SBP election is very difficult to change, and the trust you create to receive the benefits will be irrevocable. Proper planning is essential.

Work with a Fairfax special needs planning attorney to find out how SBP benefits fit into your family's plan. Attorneys Jean Galloway Ball and Loretta Morris Williams can assist you with special needs planning and creating special needs trusts. Jean and Loretta are certified in elder law by the National Elder Law Foundation and are members of the Academy of Special Needs Planners. Both are AV rated by Martindale and frequently listed as SuperLawyers.

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