Retirement pensions ends with death of a veteran. The Survivor Benefit Plan (SBP) compensates partly for this lost income. The plan provides qualified living family members of veterans a monthly earning, adjusted for inflation. The plan covers close family members like spouse and children.
It does not matter whether the veteran was on service or retired when he died, wives and children get income through the Survivor Benefit Plan. SBP is not any kind of insurance, where you receive a payment upon the death of an insured family member. This is a program, developed to ensure that the close family members of a retired veteran get at least a portion of the veteran’s pension after his death.
The amount of SBP gain depends on the chosen basis sum. The basis sum amount may vary in the range of $300 to full pension amount. The SBP gain is 55% of the basis sum amount. As the retirement pension increases with time to adjust for the rise in the cost of living, the basis sum amount and SBP gain offered to a close family member also increase and that also at the same time and rate.
Though, since retirement, a veteran must pay a premium so that his close family members get SBP gain in future. Children are covered either alone or under the SBP coverage of their mother. In the second situation, children are entitled to the gain alone only if the mother dies or remarries before she is 55 years old. The total amount of the 55% of the father’s pension is then equally divided among the children. Covering children is relatively easier for VA as they achieve financial dependence soon and then SBP gain stops.
However, SBP gain is not sufficient. Other savings and insurances need to be there to achieve complete financial stability. For example, SBP does not include any scope for bulk one-time payment that the spouse or child of a dead veteran may need.
Here is a table showing SBP expenses in combination with different basis sum amount and the corresponding gains to the qualified family members.
|Basis Sum||SBP Expenses*||SBP Gains|
|Before Age 62|
|(55% of Basis Sum)|
*SBP expenses are determined using the least expense formula. In case of basis sum amount less than $1091, the formula of column 2 is relevant. For basis sum amount $1091 or more than that, the formula of column 1 is relevant.
From the following table, you will be able foresee your post retirement situation if the inflation rate is 4 percent per year.
As you see in the example, the gain at age 90 is four times multiplied of the retirement pension at age 40. From this formula, 2 favorable aspects of SBP come out:
- SBP gains never stop.
- SBP gains increase with increase in the cost of living.
If a veteran dies immediately after retirement, his spouse or children can get this inflation adjusted income for 50 years or even longer. Lifelong income from a chosen basis sum amount of $1000 can add up to a gain of more than 1 million dollars.
Reducing tax liability
The monthly expense for your SBP coverage is not included in your taxable income. You actually need to pay fewer amounts for your SBP coverage as you will get tax benefits. This is true for most State’s income tax calculations. Though SBP gains for close family members are taxable, this is not a big issue when partner’s total income is low and gets tax relaxation for being a senior citizen. As a result, the tax liability for the living partner or children is going to be much lower and s/he can save significant tax amount.
SBP also has the option to choose to cover ex-wives. Expenses and gains are the same as for the current spouse. But the choice to cover an ex-wife under SBP stops current spouse’s or children’s coverage under the same plan.
If chosen to cover an ex-wife, current wife must be informed on that. Each veteran can choose SBP gains only once at a time. In case of more than one ex-wife, the veteran needs to confirm which ex-wife is to be entitled to the gain.
If you choose to cover your ex-wife, you and your ex-wife both must submit a signed written statement to the finance department of your state. The statement must include:
- Whether you have chosen to cover your ex-wife to follow court judgments
- Whether you have chosen to cover your ex-wife according to an optional written agreement associated with a divorce decision and if yes, whether the optional written agreement is the part of court’s judgment related to divorce, separation etc.
SBP aims to provide financial support not only to dead veteran’s spouses but also to their children until they achieve financial independence. Children coverage can be chosen either along with spouse coverage or independently.
Children of a dead veteran get SBP income so long they are under age 18, not married or under age 22 but still attending school. In case of a disabled and handicapped child, who is not in a position to support himself financially, the SBP income continues lifelong only if the disability occurred before age 18 or age 22 for full time students. Marriage, no matter at which age, stops the coverage. If the coverage is selected for ex-wife and children from that wife, even in that case, only eligible children get the benefits.
Dead veteran’s children continuing a full time study at any high school, college, university, trade school, junior college, vocational or technical institute or equivalent recognized educational institute are qualified to receive the income. These continuously studying children, attending 22nd birthday prior to July 1 or after August 31, are regarded as 22 years old on the next 1st July since that birthday.
The gain for the children also equals 55% of the retirement pension. Total gain is divided among all qualified children in equal amount. If the chosen SBP coverage was only for wife or ex-wife, children are entitled to the gains only when the mother dies or remarries before she is 55 years old.
Following calculation shows the gains for 4 children and the shares of remaining children when one of them loses his/her eligibility. We have chosen the following parameters:
Total count of children: 4
Basic retirement pension: $2000
Basis sum amount: $2000
Basis sum amount* 55%: $1100
Total gain divided among 4 children: $1100/4
Each child’s share: $275
Now assume that the oldest child is not eligible any more either due to marriage or because s/he is 18 years old or because s/he is not pursuing a full time study after age 18 etc. Now the SBP gain will be divided among 3 children and the revised calculation will be:
Total SBP gain: $1100
Total number of eligible children: 3
Total gain divided by the number of eligible children: $1100/3
Each child’s share: $366.66