Military Special Needs Trusts

Specific guidelines for military families who want to use their Survivor Benefit Annuities to set up a Special Needs Trust

The US Department of Defense has clarified requirements for eligibility, effective dates, documentation, and how to establish the SNT.  Specific details can be found on the Defense Finance and Accounting Service website (external link).

Military members have the option to direct payment of a Survivor Benefit Plan (SBP) Annuity for their dependent child to a Special Needs Trust (SNT).  This provision was included as part of the Carl Levin and Howard P. ‘‘Buck’’ McKeon National Defense PDF of application process.Authorization Act (NDAA) For Fiscal Year 2015 and passed in December of 2014.

Special Needs Trusts are traditionally used to allow beneficiaries to receive income without impacting their eligibility for means-tested programs such as SSI and Medicaid.

Department of Defense raises several cautions for military members who want to set up a SNT using their Survivor Benefit Plan:

  • Set up the SNT with an attorney who is highly qualified on this topic. DoD can only state that such a trust “may” preserve the beneficiary’s eligibility for federal and state benefits-the law does not guarantee this.  The child’s best protection is expert advice.
  • The election to make payment to a SNT on behalf of the SBP beneficiary is irrevocable.

Military families also need to seriously consider the requirement established through the language implementing the Special Needs Trust. The NDAA of 2015 established that SBP-funded trusts must abide by provisions of the Social Security Act regarding the use of Government Funds.  What this means simply is, once the individual who is disabled dies, remaining funds in the trust will revert to the State. This is called “recovery” and the State recoups all of the monies that were spent on the beneficiary through government entitlement programs.  With this provision any remaining assets can’t go to other family members or to an entity the service member may have identified, but instead is given over to the State to recoup costs.

Sec. 624 of the NDAA of 2015 allows for annuities funded by SBPs to be placed in supplemental and special needs trusts specifically as follows:

subparagraph (A) or (C) of section 1917(d)(4) of the Social Security Act (42 U.S.C. 1396p(d)(4)) for the sole benefit of a dependent child considered disabled under section 1614(a)(3) of that Act (42 U.S.C.1382c(a)(3)) who is incapable of self-support because of mental or physical incapacity may elect to provide an annuity to that supplemental or special needs trust.’’