What Happens When You Die? How Your Survivor’s Benefits Can Provide for Your Family if You Die

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What happens when you die?  It’s an important question, one that man has attempted to define since our appearance here on Earth.  Most people think about it some, others a lot, and a few maybe not at all.  But who thinks about what happens to their money when they die?

As a member of the Armed Forces, you need to ask yourself this question: What is the financial plan for taking care of my family should I die in the line of duty?  What kind of death benefits are they going to receive?

Too many Service Members give little thought to the financial implications of passing away while on active duty. For many, the DD-93 Record of Emergency Data and the SGLI election are just two more in a series of forms that they have to update once a year.  But these are two of the most important forms you can ever fill out.  It is vital that you educate yourself and decide who will receive your death benefits before it’s too late.  The last thing any family should worry about when their loved one dies is finances. Yet many times this is a top stressor after the unthinkable occurs.

I recently had the opportunity to become certified as a Casualty Assistance and Casualty Notification Officer (CAO/CNO), and during the training we went into great detail on the survivor’s benefits provided to the family members of fallen warriors.  For this article, we’ll assume that you, a Soldier on active duty, just passed away.  I’ll share with you what I learned and we’ll cover the Death Gratuity, the SGLI, and some of the other survivor’s benefits available to Gold Star families.

Military Survivors Benefits

The Death Gratuity

  • Amount: $100,000
  • Taxable: No
  • Form: DD-93 (Record of Emergency Data)

Your family has been notified of your death.  Shortly after being notified, they were asked to provide a bank account number so that they could receive their Death Gratuity (DG).  Your family is shocked to find out the amount is equal to $100,000 and is completely tax free. Until I took the CAO/CNO course I really did not understand this benefit, the tax implications, and how it would be distributed to my family.

The DG can be distributed in full to one person or split 10 ways between your spouse, children, parents, siblings, adoptive mother and father, and guardians.  Many people elect their spouse (or parents if single) to receive 100% of the DG.  The DG is paid within 72 hours of your passing away.  In the instruction page of the DD-93 it says “The member should make specific designations, as it expedites payment.”

The DG is designed to cover immediate expenses and living costs and not necessarily to pay off debts.  There are many benefit programs that will cover certain expenses – and some companies will forgive debts of fallen service members As you create your estate plan in preparation for the worst, it’s important to ask the companies you do business with what kind of survivor benefits they offer, if any.  Take note that casualty assistance officers walk survivors through all financial benefits they are entitled to receive. 

If you elect to not give your spouse 100% of the DG, your spouse will be notified that this happened but not necessarily who received the money if it was someone outside of your immediate family Be aware that if you’re a Reservist and die on your way to training, your family is eligible to receive the DG This link explains who is eligible to receive the DG and what death situations will cause the DG to be distributed.

The Service Member’s Group Life Insurance

  • Amount: $50,000 – $400,000
  • Taxable: No
  • Form: SGLV 8286 (Servicemembers’ Group Life Insurance  Election and Certificate)

The Service Member’s Group Life Insurance (SGLI) is available to all Service Members and is a low cost life insurance option for SM’s.  The survivor’s benefit is payable in a tax free lump sum or 36 month installment plan based on your election.  You’ll receive coverage up to 120 days past your separation from the military, and up to two years if you leave the service for a total disability.  Monthly costs range from $29 for the full $400,000 coverage to just $4.50 for $50,000 of coverage.  The insurance premium also covers  TSGLI (which we talk about next).

If you as the Soldier are the survivor, spouses and children are automatically covered under the Family SGLI if you are covered under the SGLI.  Spouses will receive $100,000 of coverage and dependent children receive $10,000 of FSGLI coverage, unless you elect to reduce that coverage.  Premiums are low for those under 35, maxing out at $5.00 a month for the full amount.  Children are covered for free in the FSGLI program.

The scope of this article is limited to benefits provided through the military. But you may always elect to purchase additional life insurance through a private company if you need more.

SGLI Traumatic Injury Protection Program (TSGLI)

  • Amount: Variable depending on injury ($25,000 minimum)
  • Taxable: No
  • Form: SGLV 8286 (Servicemembers’ Group Life Insurance  Election and Certificate)

SGLI Traumatic Injury Protection Program (TSGLI) is automatically available to members paying premiums to the SGLI.  If you are traumatically injured and survive for 7 full days (168 hours) from the date of the injury, you’re eligible to receive tax free compensation based on the injury.  The chart here lists how much financial compensation you can receive if you lose a limb or become paralyzed.  Should you become traumatically injured and then survive for 168 hours only to pass away, your family will be entitled to this compensation in addition to the base Death Gratuity and SGLI payments.

Unpaid Pay and Allowances

  • Amount: Variable based on Service Member’s Rank/Time in Grade
  • Taxable: Yes
  • Form: DD-93 (Record of Emergency Data)

On your DD-93, you will need to designate who will receive any unpaid allowances and pay that were due to you upon your death.  This money is not tax free, and will equal up to a month’s worth of what you were receiving when you were alive.  Take a look at last month’s LES to determine what your family could expect in the event of your death.

Dependency and Indemnity Compensation (DIC)

  • Amount: Variable based on Service Member’s Pay Grade
  • Taxable: No

This benefit lasts for the entire life of your surviving spouse if he or she does not remarry prior to age 57.   If you were married on the date of your death, your spouse will receive an amount that varies depending upon your rank.  Check out the pay table here. This benefit is non-taxable, and surviving children will receive compensation as well.  Your children will receive the DIC benefit until they turn 18, marry, or turn 23 if they attend a qualifying school.  Parents of single soldiers are eligible to receive this benefit after applying for it, which is something financial counselors and the CAO should assist the survivors in doing.

Note: there is a Survivor Benefit Plan / Dependency and Indemnity Compensation offset for surviving spouses who receive both forms of compensation. This is outside the scope of this article, but you can read more about this and other Survivor Benefits Plan topics here.

Survivor’s Benefit Plan (SBP)

  • Amount: Variable based on Service Member’s Pay Grade/Scale
  • Taxable: Yes

The Survivor Benefit Plan can be thought of as insurance on your retirement pay. If you elect to buy into the Survivor Benefit Plan and die, your surviving spouse or eligible children will receive a portion of your retirement pay. You must be eligible for retirement pay for your survivors to be eligible to receive Survivor Benefit Plan benefits.

The amount of payment by the SBP will vary depending on the determination of whether or not you died in the line of duty (LOD) or due to some other circumstance. This benefit is either taken by the spouse, the former spouse, or at a children’s rate for the children of the deceased (there are specific age limits for surviving children).  Between the SBP and DIC, the calculations can become complex so a Retirement Services Officer (RSO) will walk the survivor through the math and help them decide what allocation is right for them. Military.com has an article explaining the SBP in more detail.

Coverdell Education Savings Accounts

  • Amount: Up to 100% of your DG and SGLI Benefits
  • Tax: Tax free growth and withdrawal

Coverdell Education Savings Accounts are designed for parents to help pay for the cost of qualified elementary, secondary, and college education expenses.  For each Coverdell designated beneficiary in your family (children under the age of 18), there is a $2,000 a year contribution limit for Adjusted Gross Incomes under $95,000 for single filers and $190,000 for married filers.

All or part of the DG and SGLI payments can be deposited into one or more Coverdell Education Savings Accounts (CESA).  This applies to each designated beneficiary of Coverdell ESAs in your family.  For example: if you have two children each child can normally receive up to $2,000 a year into their CESA.  If you pass away on active duty, your spouse or child’s guardian could contribute up to 100% of your DG or SGLI payment into the children’s CESA.  This money is tax free and earnings will not be taxed upon withdrawal.  The decision to deposit money from these benefits into a CESA must be made within one year of the death of the Service Member.

It’s not our place to tell you the best place to use the funds you receive through the various Survivor’s Benefits programs. But it is important to note that there are several different programs that provide education benefits for children of fallen service members.

Social Security Survivors Benefits

The Social Security Administration pays a one time death benefit of $255, either to your surviving spouse who is caring for your dependent children, or eligible children aged 18 and under.  The SSA will require documentation within 60 days of the death to start any other benefits your family is entitled to receive.  Here is the Social Security Survivors Benefits Calculator for further reference.

Thrift Savings Plan and Savings Deposit Program

If you have a TSP account, it’s important that you designate a beneficiary.  Doing so will clear the pathway for your survivor’s to receive any balance you have in the TSP (which is like a 401k).  If you don’t have a designated beneficiary, the TSP payout will follow an order of precedence as follows: your spouse, your child or children (equally), and your parents.  Use the TSP-3 form to designate one or more beneficiaries.  Check out the pamphlet here for a detailed explanation of TSP Survivor’s Benefits.

For those of you participating in the Savings Deposit Program (SDP), the beneficiary designated to receive Unpaid Pay and Allowances will get your SDP balance.

Basic Allowance for Housing (BAH) and Moving

If you lived off post your surviving spouse will receive a lump sum equivalent to 365 days of BAH from the date of your death.  If you lived on post, they won’t receive the lump sum but can remain in that on-post house for one year.  The military will move your family one final time to the location of their choosing, and this must be completed within three years of the date of death.

Medical and Dental Coverage

Your family will receive the active duty coverage rate for three years, after which they will receive care at the military retiree rate.  Your children will be covered at the active duty rate until they are 21 and if they are already a full time student the age limit is raised to 23.  If they aren’t covered by the Dental plan, your survivors can opt in.

Education Benefits

Surviving spouses and children are eligible to receive educational financial assistance.  The Dependents Educational Assistance (DEA) program will offer up to 45 months of survivor’s benefits in the form of tuition for degree, certificate, and apprenticeship programs.  There are many other programs dedicated to Gold Star families when it comes to education benefits, such as the John D. Fry Scholarship.  Learn more at the TAPS program website. Many states also offer benefits for the children of fallen service members. Please check with your state military or veterans benefits agency for availability and details.

Military Star Card

If you’re like many families and single soldiers, you might have the Military Star Card (MSC).  The clothing portion of your MSC balance is forgivable upon death in a combat zone.  The balance for discretionary purchases may be forgiven but the surviving family will have to request that the debt be forgiven.

Businesses That Offer Survivor’s Benefits

There are some businesses that offer survivor’s benefits in the event of the loss of life by a service member.  For example, Chase has a military survivor program that is absolutely outstanding.  They offer to forgive mortgage debt, auto loans, and credit card debt held by the deceased service member.  This is the only program I’ve found so far but be on the lookout for others.

Additionally, you should reach out to your financial institution and ask if they have a checklist or any specific guidelines for transferring or closing accounts and similar actions.

The HEART Act

The Heroes’ Earnings Assistance and Relief Act of 2008 enables survivors to deposit up to all SGLI and DG benefit monies tax free into Roth IRA’s and Coverdell Education Savings Accounts.  As part of the HEART Act, should your family need to withdraw money from the Roth IRA that received your DG and SGLI payment, they can do so without penalty or taxes.  Roth IRAs funded with death benefits are not subject to the same penalties and restrictions as a normal Roth IRA.  Read up on the HEART act here and check out the paragraph on Survivor Benefits.

Tax Implications of Survivor’s Benefits

You’ve learned that the Death Gratuity and the SGLI are both tax free.  So what does this mean for your family’s future?  What if they took that money and invested it in a low cost index fund for 30 years until it’s time for your spouse to retire?

Assume your family received the DG and the maximum SGLI benefit of $450,000, and invested only $250,000 of that money into a Roth IRA.  If your spouse made no further contributions to the account, at a 7% rate of return they’d have over 1.9 Million Dollars after 30 years.  At 40 years they’d have $3.7 million.  If they contributed the current maximum of $5,500 a year for 30 years at that same rate of return, they’d have over 2.4 Million Dollars tax free.   The financial legacy associated with this is amazing.  While nothing can replace the loss of a human being, discussing a plan to handle the financial survivor’s benefits should you pass away can have a lasting impact on your family’s legacy.

The Bottom Line

It’s not fun or easy to think about death and what will happen to your loved ones if you pass away.  However, we all accept it as part of the job and know full well that we have committed ourselves to a higher calling that can result in the unthinkable.  Because of this, it’s essential to plan ahead and take care of your family even after you’re gone.  Sit down with your spouse, parents, or loved one and discuss your personal financial plan if you make the ultimate sacrifice.  You’ll leave a lasting financial legacy if their is a plan in place to help guide and manage the benefits that your survivors will receive.  Consult with your unit personnel rep to square away your DD-93 and SGLI, and see your legal office to create a will that clearly states your wishes when it comes to the immediate concerns following your death.  Doing this will allow you to take peace of mind to work in garrison or downrange.

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Related posts:2009 Veteran's Day DiscountsWhat is Servicemembers’ Group Life Insurance (SGLI) How Much Life Insurance Do Military Members Need? How Much Life Insurance Do You Need?

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