Big Change for Special Needs Families

As recently reported at SpouseBUZZ, a recent law has huge implications for military service members with a child who may not become independent.  This modification to the Survivor Benefit Plan (SBP) can provide benefits-sheltered income for a child even after the parents’ death.

Now, I am not an expert in special needs law, or Medicare trusts, and there are quite a few details that need to be worked out.  Please keep that in mind as I am trying to explain this.

When a service member retires from the military, they have the option of electing Survivor Benefit Plan (SBP) coverage for their spouse and/or dependent children.  Military retirement pay ends with the death of the retiree.  SBP coverage is an income-continuation plan similar to life insurance.  If the retiree has SBP coverage, then a surviving spouse or dependent children will continue to receive a portion of the retirement income after the retirees death.  SBP is a good thing – I recommend that almost everyone takes advantage of it.

One of the many great benefits of SBP is it allows for coverage of children who are dependent beyond the usual age of independence (21, or 23 if in school full-time.)  However, this great benefit has had a dark side, because income provided by SBP could push a child out of financial eligibility for Medicaid, Social Security Disability Insurance,

The new law allows SBP benefits to be paid into a special needs trust.  A special needs trust, sometimes called a supplemental care trust is a legal vehicle designed to allow beneficiaries to use the money in the trust, while at the same time allowing the beneficiary to receive essential needs-based government benefits.

What does this look like in reality?  Let’s say Sergeant Simmons has a disabled child.  When Sergeant Simmons retires, he can select to cover his children under the Survivor Benefit Plan.  (He can also cover his spouse, but that is a separate question.)  When Sergeant Simmons dies, his child will continue to receive a portion of his retirement pay until the child dies.  With the law change, that money can be put into a special needs trust so that the child doesn’t lose other important benefits.

This is an amazing thing for families with special needs children who may not become independent.  Child SBP coverage is super-cheap and the potential benefits are huge.  Non-military pension benefits have long been able to be assigned to a special needs trust.  This change in law gives military families the same opportunities.

If you have a special needs child, you definitely need to keep an eye on how the regulations and rules come out.  If you don’t have a disabled child, you still may want to consider adding children to your SBP coverage when you retire.  The cost is only about $20 per month until the youngest child becomes ineligible, and you will have outstanding coverage if a child were to become disabled before reaching the age of independent.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • EVE

    I LOVE THE WAY YOU ARE HELPING OUR VETERANS. I HAVE BEEN DIVORCED FROM A MAN THAT SERVED IN THE NAVY SINCE 1980 BUT I NEVER REMARRIED. DO I QUALIFY FOR SOME OF HIS BENEFITS??