Five Estate Planning Changes When Transitioning From The Military

As you face your transition, you’re going to encounter any number of obstacles.  Depending on your circumstances, these obstacles can be relatively simple (such as taking off your uniform, sliding into a GS job with very little impact to your family and no relocation) or very complex (like moving from an overseas tour with no…
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As you face your transition, you’re going to encounter any number of obstacles.  Depending on your circumstances, these obstacles can be relatively simple (such as taking off your uniform, sliding into a GS job with very little impact to your family and no relocation) or very complex (like moving from an overseas tour with no idea where you’ll live because you’re not sure what your job will be), or anywhere in between.  One of the most important, and most overlooked, aspects of transitioning is estate planning.  This article discusses what estate planning issues you should consider as you transition.

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 crap goes to them if you both pass.  Hopefully, someone will establish a trust (or something) 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 POA.  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 get 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 isn’t necessarily risker (especially if you’ve spent a lot of time in a combat zone), you are susceptible to a lot of things that you didn’t have to worry about in your 20s and 30s.  As you get older, your estate planning needs become a higher priority.
  • You probably have more to insure. You might not think you do, but you do.  You’ve spent a career in the military, and you’re sure not going to leave the service without something, right?  Even if you don’t have much in the way of retirement accounts, you still have a pension, and that’s worth protecting, in some way.  You might have a house, cars, and other stuff that you want to ensure goes to the right place
  • You probably have more people to protect. Such as a family.  Your family probably depends on your for a decent amount of income.  And if not a family, you probably have people you’d like to give your stuff and money to when you die.  If not, you should probably stop reading this article.

What Your Estate Planning SHOULD Look Like

So, now that we know WHY you should take a closer look at your estate planning, let’s look at WHAT you should look at.  (Disclaimer:  I am not a lawyer, so this is not legal advice.  It is, however, a financial analysis of the impacts of proper and improper estate planning.  For legal advice (such as whether you should establish a trust), you should consult with an attorney licensed to practice in your state.

1. Income Protection

What happens when you die?  Your income stops.  Not just your pension, but income associated with any job you pick up along the way.  While the Survivor Benefit Plan (SBP) may be appropriate, you need to look at SBP (or any alternatives) as a supporting part of a bigger picture.  You should look at any estate planning effort as a means to address your family’s entire income needs, not just your pension.

Most likely, this will involve a life insurance policy, unless you’re confident that you have enough saved away in retirement accounts (which are accessible without penalty after death) that you don’t need a life insurance policy.  However, you should plan for your life insurance policy to work in conjunction with other available sources of income, such as your retirement accounts, after-tax accounts, dividend-paying stocks, and SBP to support the income needs of your loved ones.

This may involve a conversation with a financial planner about how to invest insurance proceeds in a manner that helps to conservatively generate the income your family needs.  You’ll probably want to have this conversation as you’re going through your estate planning efforts…don’t subject your family to do this after you’re gone.

Below are a couple of links to some articles that I’ve written about protecting your income after the military:

2. Asset Protection

What happens to your stuff when you die?  Whatever you designate.  Here’s the catch:  It’s not enough just to know what you want, you have to designate what actually happens. Without going into too much detail, your estate planning should account for each of your major assets—housing, automobiles, precious items, investments, financial instruments & accounts, insurance policies, etc.  While giving specific advice is outside the scope of this article, it’s important to understand the difference between probate and non-probate assets:

  • Probate assets. Probate is what happens when you have a will.  Your will is entered into the court with jurisdiction, then there’s usually a waiting period.  This is to make sure that someone doesn’t ‘come forth’ with a more recent copy of your will, or attempt to contest it.  This doesn’t usually happen, but people do read obituaries and make stuff up just to see if they can get some ‘go away’ money.  Probate assets can be tied up for weeks, months, or years.
  • Non-probate assets. On the other hand, non-probate assets are things that are 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

Let’s assume that a spouse would be taken care of if the first two categories were handled correctly.  There are other things to consider here.

  • 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’re 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’re caring for aging parents? Do you have caretaker responsibilities, or other responsibilities as outlined in a POA or living will?  Are you someone’s guardian?  Do those governing documents clearly outline a secondary and tertiary designee in case you’re 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. What if you don’t die?

Your estate planning efforts should also address what happens if you become incapacitated and are no longer able to make your own decisions.  You should consider the following:

  • What if you’re incapacitated?
  • Do you have people designated to act on your behalf as outlined in a POA or living will?
  • Have you communicated with those people what your wishes are?
  • Do you have documents in place, such as advance medical directives?

5. Who should you talk to?

Your estate planning, while executable without any dialogue, will go a lot more smoothly for your loved ones if you’ve had the right conversations which are captured in your estate planning documents.  Here is a list of who you might want to talk with in formulating your estate plan:

  • Your family. Obviously, this should include your spouse and children.  However, this should also include your parents, brothers and sisters, or other family members who might have an interest in your estate.  If you’re on good terms with any ex-spouses, it might be a good idea to have the conversation that covers what they can expect to receive from your estate, and any expected child custody issues.  If you’re not on good terms with an ex-spouse, you should 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. I could have said friends, but I want this to include anyone who:
    1. Is expected to inherit anything
    2. Is expected to assume any authority or responsibility in a POA or medical directive
  • Is expected to be a trustee or executor

You want to have these conversations because you should have the confidence that the other person is receptive to your wishes.

For example, you might want to gift your home to your children, because they grew up in it, and you think that they might want it.  After a conversation, you might find that one or more of them have no interest in the home because it doesn’t fit in their life plans, and they’d 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 spend a lot of time figuring out how to value your house and determining a buy-out.

  • Estate attorney. Obviously, your estate attorney is going to be a focal point of your estate planning efforts.  You should look for a person or firm that specializes in estate planning, not a general attorney who ‘does wills, POAs and trusts.’   You’re going to 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 get you so far…they can put together all of your legal documents.  However, a lot of your estate planning will fall in the category of financial planning, which estate attorneys usually will not touch.  Instead, they’ll usually refer you to one of a number of financial planners, who can sit down with you and discuss the financial aspects of your plan, which includes everything from insurance planning to what happens to your retirement assets.  When I attend my monthly Tampa Bay Estate Planning Council meetings, I’m surprised at how many financial planners attend…there are probably as many CFPs® as there are attorneys.

This is just a starting point for determining your estate planning needs, and is not intended to cover all of the ins and outs of a particular situation.  To specifically address your personal situation, you need to talk this over with your family, designated representatives, estate attorney and financial planner.  You could argue that this article should be written for everyone, not just for people who are transitioning.  While that’s true, transition is usually the time when people are looking to take action for their ‘post-military’ life.  When it comes to estate planning, you should take the right actions, and I hope this article helps you do just that.

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About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and financial planner with Lawrence Financial Planning, a fee-only financial services firm. As a retired naval officer, Forrest helps veterans, transitioning servicemembers and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

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