Survivor Benefit Plan and Pooled Special Needs Trusts for Dependent Children

Published in Veteran Family Matters

By Joanne Marcus, MSW, President and CEO of CCT

With the passage of the Howard P. “Buck” McKeon National Defense Authorization Act of 2015 (Section 624, which amends title 10, United States code sections 1448, 1450, and 1455) military members and retirees were given the option of directing annuity payments from the Survivor Benefit Plan (SBP) to a Pooled Special Needs Trust (PSNT) for the benefit of a dependent child with special needs. A PSNT established in the name of the child does not jeopardize the child’s eligibility for SSI and Medicaid. The benefit described in this article should not be confused with eligibility for VA Benefits and that each program should be considered in detail.

A (PSNT) is a type of special needs trust that is administered by a nonprofit organization and is a cost effective way to preserve funds that will be used solely to enrich the quality of life of a child with special needs. SBP annuity payments fund the trust and the funds for each Beneficiary are “pooled” together for investment purposes. Pooling of funds reduces administrative fees and increases the principal for investment purposes. Individual subaccounts are created, and financial statements are provided electronically for those with internet access or by mail. Funding minimums are low and once the funded, the trust is irrevocable. The PSNT administrator makes decisions on how funds from the trust are disbursed on behalf of the Beneficiary and manages the investment of the funds.

By law, a Military Survivor Benefit Plan trust must be set up as a first-party funded special needs trust due to the Medicaid payback provision. Upon the death of a Beneficiary who receives Medicaid, there are specific rules for what happens to the remainder. These rules vary from state to state but in general, when funds remain in the account upon the Beneficiary’s death, it is required that the funds be used first to payback Medicaid for benefits the Beneficiary received during his or her lifetime. For a Beneficiary who has never received Medicaid benefits, the remaining funds are distributed to the Successor Beneficiary(‘s)3 after allowable fee distributions are deducted.

Prior to making the Survivor Benefit Plan election the trust account must be established and the member must have the trust Tax Identification Number and the Special Needs Trust
Certification form. Election of Survivor Benefit Plan benefits prior to retirement is processed by the Service and once approved is irrevocable.

To be eligible to elect the option to cover the special needs trust under the Survivor Benefit Plan, the retiree must have previously elected Spouse and Child or Child Only coverage for a disabled child under the Survivor Benefit Plan. There must also be an established and certified special needs trust. If the service member is alive and if they have previously elected Spouse and Child or Child Only coverage under the Survivor Benefit Plan, they may make the designation to direct payment on the behalf of a beneficiary to a special needs trust at any time. After the death of a member or retiree, if the service member or retiree had elected Spouse and Child or Child Only coverage under the Survivor Benefit Plan, any surviving parent, grandparent or court appointed legal guardian may make the designation on the behalf of a beneficiary.

The trust can be used to pay for expenses that will enhance the quality of life for the beneficiary including, but not limited to, medical and dental services not covered by insurance, assistive technology, pre-paid burial expenses, caregiver expenses and more. By establishing a PSNT, there can be peace of mind knowing that payments from a Survivor Benefit Plan will be available for a loved one without jeopardizing eligibility for Medicaid and SSI.

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