Survivor Benefit Plan Payments for Disabled Dependents

Many retirees have been hesitant to select a disabled adult child as their beneficiary because they feared any extra income would disqualify the child from receiving other government subsidies for disabled adults, such as housing assistance and Medicaid.

A recent law allows retirees to contribute their SBP payments to a Special Needs Trust to avoid this problem

What is a Special Needs Trust?

A Special Needs Trust or SNT is a trust designated for beneficiaries who are mentally or physically disabled. It is written so the beneficiary can enjoy the use of property that is held in the trust for their benefit, while at the same time allowing the beneficiary to receive essential needs-based government benefits.

Under the law, the SBP payments are deposited directly into the SNT to avoid any issues with income-based benefits.  

To set up such a trust, the retiree must make a written election to send their SBP payments directly to the trust. This election cannot be changed. In situations where SBP payments are made to more than one dependent child, the SNT shall be treated as a dependent child for purposes of determining the shares payable to each of the children.

To irrevocably elect SBP payments to an SNT the member or retiree must submit a statement that they wish to have the annuity paid to the SNT and include the name and tax identification number for the SNT.  The member or retiree must either submit a separate statement using a form available on the DFAS website or a legal statement from a lawyer certifying that the trust is a SNT created for the benefit of the disabled dependent child and is in compliance with all applicable Federal and State laws or a certification from the Social Security Administration that the trust qualifies as a SNT pursuant to title 42 of the U.S.C.

If the retiree dies without making an election to have the SBP payments go into the SNT the disabled dependent child’s surviving parent, grandparent, or court appointed legal guardian may irrevocably elect to have SBP annuity payments made to the SNT.

If the member dies on active duty in the line of duty and SBP coverage for the dependent child is granted by the military, then a disabled dependent child’s surviving parent, grandparent, or court appointed legal guardian may irrevocably elect to have SBP annuity payments made to the SNT.

If the member dies during inactive duty training with no surviving spouse and the SBP becomes payable to the surviving dependent children, then the disabled dependent child’s surviving parent, grandparent, or court appointed legal guardian may irrevocably elect to have SBP annuity payments made to the SNT.

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