U.S. MILITARY
SOUNDS LIKE A PLAN: You have worked hard, served our country and have an additional income source that can truly make a difference. An estate plan can preserve benefits programs worth hundreds of thousands of dollars or more.
PLANNING FOR SERVICE MEMBER FAMILIES
BY ROB WRUBEL, CFP®
Special needs planning is complicated, there's no getting around it. Legal, tax, governmental benefits, housing, health, life insurance and investment issues all play a role and need to be coordinated. Simple enough. Just get extra degrees and professional training as a doctor, lawyer, CPA, CFP, benefits coordinator and off you go. Who needs sleep?
My goal is to simplify the process. Focus on one planning goal at a time, take action steps and maintain momentum to get it done. People who check off small goals find they make progress to the big ones.
It's possible and preferable to get started on financial and estate planning even if you do not know how other parts of your list of dreams will occur. No matter what, you will need to get out of debt, build emergency funds, save and invest for the future and protect benefits. Yet, without knowing why you want to do this, how it will make you feel, and what you want out of life, it's hard to keep motivated to achieve your goals.
Good planning starts when you take one hour of time to think and dream about the future and to decide what is most important for you. Carve out an hour somewhere in your schedule – in the car on a road trip, your lunch time or when your child is otherwise engaged with school, therapy or activities (I know, even harder with the COVID-19 crisis but not impossible).
As a financial planner, I emphasize financial health and protecting benefits and military families have two important ones: TRICARE and the Survivor Benefit Plan (SBP). These are significant and important benefits and with Medicaid and Supplemental Security Income (SSI) you have a unique system to support a high quality of life for your family member with a qualifying disability.
Service members receive guaranteed income for life and that income can continue to your spouse or child who was disabled before the age of 18 (or 22 if a student) upon your passing. SBP presented a real problem prior to 2015 – the income had the potential to eliminate SSI and Medicaid benefits but often was not enough to replace them. Often, my planning recommendation was to replace SBP with life insurance and direct that life insurance to a special needs trust.
That all changed with the passing of the National Defense Authorization Act of 2015. Disabled recipients of SBP can now direct those income payments to a first party-funded special needs trust. This was a significant and important change which allows your family member to maintain his or her SBP income and still qualify for benefits to provide housing, additional insurance, access to programs and the SSI income. The rules around special needs trust are confusing and it's important you know how to set-up your plan to maximize the value of this important change.
1. New trust and new forms. If you assist a person with a disability receiving SBP funds now, work with an estate planning attorney to create a new trust, fill out the necessary forms and direct SBP income to that trust. SBP funds will no longer count as income (for benefit purposes) and open access to SSI and community-based programs funded by Medicaid. Find an attorney knowledgeable of military benefit programs.
2. You need an estate plan. Estate plans include naming key people to help your family and you in the event of your death or incapacitation. Who will take care of minor children or make medical decisions on your behalf? These people are named in your estate documents. Also, your will directs the share of your estate assets for your family member to a special needs trust, a different trust than the one that will take SBP payments.
3. This is where special needs trusts get confusing. There are two main types of special needs trusts and the main difference is how they get funded. Follow the money to understand the differences between a third-party funded trust and a first-party funded trust. First party is the person's own money. For instance, if I get into a car accident and then move my assets from my name to a trust, this is first-party funded. My money to a trust to benefit me. If I take my money and move it to a trust to benefit my daughter with Down syndrome, this is third-party funded. My money to benefit someone else.
4. Children of service members will likely have two trusts at some point. Money from you, the parent, will go to the third-party funded trust. Money from SBP will go to the first party funded trust. Why? States have a payback provision on first-party funded trusts. They provide funding for social, work and health programs (often through Medicaid) and have the legal right to repayment from funds sitting in first-party trusts. They can only be paid back up to the amount remaining in those types of trusts. You want to keep family funds and SBP funds separate to have any remaining third-party trust assets go to other family or designated beneficiaries.
Tackle your estate plan now. This is one area of planning that can be done quickly. Saving for retirement takes times and assets grow over decades. Getting out of debt also takes time – a few months or years once you commit to it. You have worked hard, served our country and have an additional income source that can truly make a difference when handled well. An estate plan can be finished in 30 days and can preserve benefits programs worth hundreds of thousands of dollars or more. It's a quick fix that gives your family member with special needs a chance for a high quality of life. •
ABOUT THE AUTHOR:
Rob Wrubel is a CFP who has a daughter with Down syndrome. He is recognized as a leading expert on financial planning for families with special needs members. Wrubel has written two books about financial planning and special needs families — Financial Freedom for Special Needs Families: 9 Building Blocks to Reduce Stress, Preserve Benefits, Create a Fulfilling Future and Protect Your Family: Life Insurance Basics For Special Needs Planning — and he has been published recently by Law360.com and The Good Men Project. Wrubel holds the Certified Financial Planning (CFP®) designation, the Accredited Investment Fiduciary® (AIF®) designation from Fi360, and the Accredited Estate Planner (AEP®) designation from the National Estate Planning Council.