Five Estate Planning Changes When Transitioning from The Military

Many challenges come with transitioning from military service, and estate planning is one area that service members often overlook during this period. Here is a look at what your estate plan probably looks like on active duty and what it should look like as you prepare to transition.

What Your Estate Plan Probably Looks Like on Active Duty

When you’re on active duty, estate planning needs are fairly straightforward. A typical military career might look something like this:

• Boot camp: Single with no dependents – get the maximum SGLI coverage and designate a beneficiary on your service record. In the Navy, this is known as “updating your Page 2”, the record of emergency data that guides the disposition of assets and unpaid allowances.
• Getting married: Update your SGLI beneficiary and service record to reflect your spouse. This is a critical step. Failing to update your beneficiary designation after marriage can have serious consequences for your spouse.
• Having children: Add children as contingent beneficiaries. Make sure your assets pass to them if both you and your spouse were to pass away. Consider establishing a trust for minor children, but at minimum work with your base legal office to ensure their interests are protected.
• Deployments: Before each deployment, verify that all beneficiary designations are up to date and obtain a power of attorney. If you have a new spouse or are recently married, consider a limited POA rather than a general POA, depending on the length of your deployment and the length of your relationship.

During active duty, most service members don’t think much about additional life insurance beyond SGLI, establishing a formal trust for their children, or medical directives. And in many cases, that’s understandable. SGLI provides up to $500,000 in coverage, and base legal offices handle the basics. But as you approach transition, your estate planning needs to evolve significantly.

There are several reasons why your transition is the best time to revisit your estate planning:

• You’re older than you used to be. While your life may be less physically risky, your health is more susceptible to conditions you didn’t worry about in your 20s and 30s. Estate planning should become a higher priority as you age.
• You probably have more to protect. Even if your retirement accounts are modest, you may need to protect your pension, a home, vehicles, and other valuable assets.
• You probably have more people depending on you. Your family may rely on your income and benefits. Ensuring they are protected should be a central part of your transition plan.

What Your Estate Plan Should Look Like After the Military

When transitioning from the military, there are five key areas of estate planning to address. It is also important to seek legal advice to help you plan and answer specific questions. Consult an attorney licensed to practice in your state.

1. Income Protection

What happens to your family’s income when you die? Your income stops, not just your pension, but also any income from civilian employment you pick up along the way. While the Survivor Benefit Plan (SBP) may be appropriate, it may not be enough on its own. Estate planning should address your family’s entire income needs.

This will likely involve a life insurance policy, unless you are confident that your retirement accounts and other assets are sufficient to support your family without additional coverage. Plan for your life insurance policy to work in conjunction with your retirement accounts, after-tax accounts, dividend-paying investments, 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 may be an important step. Keep in mind that even the maximum SGLI coverage of $500,000 may not be enough for a family to live on long-term; additional life insurance coverage is worth considering.

For more information on protecting your income after the military, see these resources:

• What Happens to SGLI After the Military?
• Understanding the Survivor Benefit Plan
• Term Life Insurance Versus Survivor Benefit Plan — A Side-By-Side Comparison

2. Asset Protection

What happens to your assets when you die? Whatever you have designated, which is why it is not enough to simply know what you want. You have to take the formal steps to designate what actually happens.

Your estate planning should account for each of your major assets — housing, automobiles, sentimental items, investments, financial accounts, insurance policies, and more.  It is also important to understand the difference between probate and non-probate assets:

• Probate assets go through a legal process that determines whether your will is valid and who should handle your affairs. The will is entered into the court, notice is given to beneficiaries and heirs, and there is often a hearing. This process can take weeks, months, or even years and can be costly.
• Non-probate assets pass outside the terms of a will – life insurance policies, trusts, payable-on-death accounts, and jointly held assets are all examples. These can automatically be transferred to the beneficiary without going through probate. Maximizing the amount of your net worth that passes outside of probate will allow your estate plan to be executed more quickly and efficiently, minimizing legal fees in the long run.    

3. Survivor Protection

There are several important survivor protection considerations to address in your estate plan:

• Guardianship for your children. Have you designated a guardian in the event that both you and your spouse were to pass away? Have you discussed this with your proposed guardian to ensure they are willing and able to assume that responsibility?
• Unmarried partners. Depending on the state you live in, you cannot assume that everything will pass to your significant other without difficulty if you are not married. Make sure your estate planning documents clearly reflect your wishes.
• Aging parents or other dependents. If you have caretaking responsibilities for aging parents or others, do your estate planning documents clearly outline a secondary and tertiary designee in case you are unable to fulfill those duties?
• Former spouses. Do your documents adequately reflect your wishes regarding any former spouse? Are they entitled to a portion of your estate under a divorce agreement? Ensure your estate plan aligns with any divorce settlement terms.

4. Power of Attorney and Living Wills

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

• Do you have people designated to act on your behalf in a power of attorney or living will?
• Have you communicated your wishes clearly to those individuals?
• Do you have advance medical directives in place?

5. Who to Talk to

While your estate planning documents can technically be executed without prior discussion, the process will go much more smoothly for your loved ones if you have had the right conversations beforehand. Here is a list of who to talk to when formulating your estate plan:

Your family. This should include your spouse and children, but can also include parents, siblings, or other family members who may have an interest in your estate. Be clear about what they can expect to receive, and make sure your documents reflect your exact intent, especially if a former spouse is involved.

People named in your estate planning documents. Anyone who expects to inherit something, is expected to assume authority in a POA or medical directive, or is expected to serve as a trustee or executor should be made aware of their role. These conversations ensure the other person is receptive to your wishes and understands what will be expected of them.

For example, you may want to leave your home to your children because of the memories associated with it. But after a conversation with them, you might learn they have no interest in keeping the property and would prefer a monetary equivalent. Knowing this in advance allows you to adjust your will accordingly, sparing your family from having to make difficult decisions after you are gone.

An estate attorney. Look for an attorney or firm that specializes in estate planning rather than a general practitioner. You will have questions that require in-depth answers, particularly if you have reason to believe you need additional planning considerations, such as establishing a trust.

A financial planner. Estate attorneys can put together your legal documents, but much of your estate planning will fall into the category of financial planning, which estate attorneys typically do not handle. A fee-only financial planner can help you address the financial aspects of your plan, from insurance planning to what happens to your retirement accounts and pension.

Take Action on Your Estate Plan Before You Transition

Transitioning from the military is one of the most significant life changes you will face, and it is also one of the most important times to ensure your estate plan is in order. This guide is a starting point, not a comprehensive solution for every situation. To fully address your specific needs, work with your family, designated representatives, an estate attorney, and a financial planner.

The steps you take now to protect your income, assets, and loved ones will provide peace of mind not just for you, but for everyone who depends on you.

Meet the Author

Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and enrolled agent. As a retired naval officer, Forrest helps veterans, transitioning service members and their families address the financial...

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