Many challenges come with this change, and service members often overlook estate planning after transitioning.
What Your Estate Plan Probably Looks Like on Active Duty
When you’re on active duty, it’s pretty easy to know what to do with your estate planning needs (I previously wrote an article about estate planning in the military, which you can find here). If you’re anything like me, your career looks something like this:
- Graduate boot camp: I’m single, so I just get the max SGLI, and everything goes to my mom, according to my service record (in the Navy, we call it “updating your Page 2,” which is the record of emergency data that guides the disposition of assets, unpaid allowances, etc.).
- Get married: Change the SGLI & Page 2 info to my wife. (DON’T forget, because all those horror stories about mean moms and destitute spouses will come back to haunt you!) Get an “I love you will.”
- Have children: Add children as contingent beneficiaries. Make sure all your things go to them if you both pass. Hopefully, someone will establish a trust for them, but for now, we’ll just do whatever the base legal office tells us we can do for free.
- Deployments: With each deployment, double check to make sure everything happened as outlined above. You know, in case you had extra kids and forgot. Oh, and get a power of attorney. Note: If you’ve known your new spouse for less time than you expect to be deployed, you might want to get a limited POA. Just sayin’.
We probably didn’t think too much about additional insurance (probably a must have in today’s day and age, since $400K isn’t a whole lot for a family to live on), having an actual trust for our children (and what that trust would look like), medical directives, etc. And somehow, most of us got through our career without a blemish. There are a couple of reasons why your transition is the best time to think about your estate planning needs:
- You’re older than you used to be. While your life is not as risky, your health is susceptible to things that you did not worry about in your 20s and 30s. As you age, your estate planning needs to become a higher priority.
- You probably have more to insure. Even if you don’t have much in the way of retirement accounts, you may need to protect your pension, a house, cars, and other valuable items.
- You probably have more people to protect. Your family may depend on you. And if not a family, you probably still have people you would like to give your valuables and money to when you die.
What Your Estate Planning Should Look Like
When estate planning, there are several areas you should pay attention to. It is also important to seek legal advice to help you plan and to answer specific questions, such as whether you should establish a trust. Consult an attorney licensed to practice in your state.
1. Income Protection
What happens when you die? Your income stops — not just your pension but also income associated with any jobs you pick up along the way. While the Survivor Benefit Plan (SBP) may be appropriate, you may need to look for alternatives. Estate planning should address your family’s entire income needs, not just your pension.
This will likely involve a life insurance policy, unless you are confident that you have enough saved away in retirement accounts (which are accessible without penalty after death) that you do not need one. Plan for your life insurance policy to work in conjunction with your retirement accounts, after-tax accounts, dividend-paying stocks and SBP to support the income needs of your loved ones.
A conversation with a financial planner about how to invest insurance proceeds to help generate the income your family needs might be necessary.
Below are links to some articles about protecting your income after the military:
- What Happens to SGLI After the Military?
- Understanding the Survivor Benefit Plan (in-depth article and podcast)
- What is the Survivor Benefit Plan, and What Does it Mean to Me?
- Why You Should Strongly Consider Not Participating in the Survivor Benefit Plan
- Term Life Insurance Versus Survivor Benefit Plan — A Side-By-Side Comparison
- Survivor Benefit Plan Resources: Everything You Need in One Blog Post
2. Asset Protection
What happens to your stuff when you die? Whatever you have designated. That’s the catch: It is not enough to know what you want. You have to designate what actually happens.
Your estate planning should account for each of your major assets — housing, automobiles, precious items, investments, financial instruments and accounts, insurance policies, etc. It is also important to understand the difference between probate and non-probate assets:
- Probate assets. Probate is a legal process that determines whether your will is valid, if you have one, or who should handle your affairs and receive your estate if you don’t. The will is entered into the court with jurisdiction, notice is given to the beneficiaries and heirs and there is often a hearing. This is to make sure that no one comes forward with a more recent copy of the will or attempts to contest it. This does not usually happen, but probate assets can be tied up for weeks, months or years.
- Non-probate assets. On the other hand, non-probate assets are things designated outside the terms of a will. Life insurance policies, trusts, POD (payable upon death) checking accounts and jointly held assets are all examples of things that pass outside the terms of a will. These can automatically be paid or transferred to the beneficiary, trustee or joint account owner without respect to the will. Maximizing the amount of your net worth that passes outside of probate will allow your estate plan to be executed much more quickly and efficiently, which will minimize your legal fees in the long run.
3. Survivor Protection
There are other things to consider here in estate planning:
- What about your children? Have you established a guardianship in the case you and your spouse were to pass? More importantly, have you discussed that guardianship with your proposed guardian to make sure they’re in a position to assume that responsibility?
- What if you and your significant other are not married? Depending on the state you live in, you cannot assume that everything will pass to your significant other without difficulty.
- What if you are caring for aging parents? Do you have caretaker responsibilities or other responsibilities as outlined in a power of attorney or living will? Are you someone’s guardian? Do those governing documents clearly outline a secondary and tertiary designee in case you are not able to fulfill these duties?
- What if you have an ex-spouse? Do you want that person to receive anything from your estate? Are they entitled to a part of your estate as a result of your divorce agreement? Do your documents adequately reflect your wishes?
4. Power of Attorney and Living Wills
When you are estate planning, address what happens if you become incapacitated and are no longer able to make your own decisions. Consider the following:
- What if you are incapacitated?
- Do you have people designated to act on your behalf as outlined in a POA or living will?
- Have you communicated your wishes to these people?
- Do you have documents in place, such as advance medical directives?
5. Who to Talk to
While your estate planning is executable without any dialogue beforehand, it will go a lot more smoothly for your loved ones if you have had the right conversations about what is captured in your estate-planning documents. Here is a list of who you might want to talk to when formulating your estate plan:
- Your family. This should include your spouse and children. However, it can also include your parents, siblings or other family members who might have an interest in your estate. If you are on good terms with any ex-spouses, it might be a good idea to have a conversation that covers what they can expect to receive from your estate and any expected child-custody issues. Whether you are on good terms with an ex-spouse or not, be very clear that your estate-planning documents reflect your exact intent and comply with any terms that may be outlined in your divorce settlement.
- People named in your estate-planning documents. This can include anyone who:
- Expects to inherit anything
- Is expected to assume any authority or responsibility in a POA or medical directive
- Is expected to be a trustee or executor
These conversations are important, as they ensure the other person is receptive to your wishes.
For example, you may want to leave your home to your children because they grew up in it. However, after a conversation with them, you might learn that they have no interest in the home because it does not fit in their life plans, and they would rather have a monetary equivalent. You can make an adjustment to your will that outlines how that would look so that your children do not have to figure out how to value your house and determine a buy-out.
- Estate attorney. Your estate attorney will be a focal point of your estate planning. Look for a person or firm that specializes in estate planning, not a general attorney. You will have questions, and you want to be able to discuss them with someone who can go over them in-depth, particularly if you have reason to believe that you need additional planning considerations, like establishing a trust.
- Financial planner. Estate attorneys will only get you so far. They can put together all your legal documents, but a lot of your estate planning will fall in the category of financial planning, which estate attorneys usually will not touch. Instead, they will usually refer you to several financial planners, who can sit down with you and discuss the financial aspects of your plan, including everything from insurance planning to what happens to your retirement assets.
This is just a starting point for determining your estate-planning needs. It is not intended to cover all the ins and outs of a particular situation. To specifically address your situation, you need to talk this over with your family, designated representatives, estate attorney and financial planner. Transitioning is the time when people are looking to take action for their post-military life. When it comes to estate planning. make sure you take the right actions.