Wills and Trusts: Best Practices for Military Families

Do you have an estate plan in place? Using a will or trust can help ensure your final wishes are followed and help you avoid costly legal expenses
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Deciding what happens to your assets after your death might feel uncomfortable, but it's important to safeguard your family's financial future.

Disclosure: This article is sponsored by Navy Mutual.

Table of Contents
  1. Wills
    1. What Happens if You Die Without a Will?
  2. Trusts
    1. Revocable and Irrevocable Trusts
    2. Testamentary Trust

To safeguard your family’s financial future and prevent your estate from getting tied up in the court system, you need to have a plan for what you want to happen to your assets after you pass away.

Service members face a heightened level of risk in their everyday lives compared to the general public as a function of their careers. Because of this, it’s important that you have your affairs in order now so that if something unexpected happens in the future, your family can avoid the additional heartache of waiting for a judge in a probate court to decide what happens with your belongings, your accounts, and – in some cases – your children.

There are two main items that you can use to prepare your estate: a last will and testament, commonly called a “will,” and a trust.

Wills

A last will and testament is a legally binding document that details your wishes for how your estate should be handled after your passing. Within it, you can designate an executor, beneficiaries, and a guardian for any minor children. You can also share explicit instructions for your funeral arrangements and the distribution of any remaining assets.

Your will should also name an executor – a person tasked with making sure that will’s terms are carried out. Your will’s executor can be a trusted family member, friend or an attorney. The executor is responsible for filing the appropriate paperwork with probate court, making any of your outstanding payments and distributing your assets to beneficiaries.

The individuals, businesses, charity organizations or other entities you leave your assets to are called beneficiaries. It is important to note that a beneficiary designation in a last will and testament does not override a beneficiary designation on a life insurance policy. Any individual listed as the beneficiary of a life insurance policy (including SGLI and VGLI), bank account, Thrift Savings Plan or other retirement account will receive the associated proceeds regardless of contradicting wishes expressed in a will.

Note: Review your beneficiaries every time something big happens in your life, like marriage, divorce, birth of a child, death of a loved one, buying a house, etc. These life changes may affect who you wish to be your beneficiaries. To ensure your assets are distributed to the right person, you must update your wishes.

guardian is a person named in a will who is entrusted to care for children under age 18 or those who are physically or mentally unable to care for themselves after your death. Because you can not predict the timing of your passing, it is often wise to choose alternate guardians in the event that the named guardian cannot fulfill their duty of care.

When you pass away, probate court may need to verify your will’s legitimacy. Once that happens, the executor of your estate can begin distributing your assets. Depending on the value of your estate and your location, however, this may not be required.

Estates that qualify as “small estates” are able to submit a small estate affidavit to the court, which allows for a more simplified probate process. However, what qualifies as a small estate varies by state. Regardless of the size of your estate, your executor typically needs to file your will with the court so that it can become public record.

What Happens if You Die Without a Will?

If you die without a will, state law will determine who will care for your children, what happens to your pets, and who will inherit your money and property.

In addition to verifying the legitimacy of a will and guiding the distribution of the estate, probate law also governs intestate deaths (those that occur without a will in place). Through this process, the court will name an executor. This may be your surviving spouse, if you have one, or it could be a “public trustee” the court appoints to distribute your assets according to state law (estates are typically divided among living relatives). Until the court designates an executor, probate law mandates that all assets contained within the estate are frozen and can not be accessed for any purpose.

Probating an estate may cost between 4-7% of the estate’s value. Having a written will, even if your estate still needs to be probated, simplifies the process and saves you money.

As an active duty or retired military member, you have access to legal personnel on base who can help you create your will at no cost. The American Bar Association also maintains a directory of legal programs that are available to military families in each state.

Learn more about Last Will and Testaments here.

Trusts

A trust is a legal relationship where one or more persons manage property on the behalf of others. In other words, a trust is able to hold assets outside of your personal estate.

More specifically, a trust is an agreement between two people in which you (the grantor, or creator of the trust) make property available to a trustee (the manager of the trust) for certain purposes. The trustee agrees to manage the property according to your wishes.

All types of trusts involve three main people: the grantor, the trustee(s), and the beneficiaries.

The grantor creates the trust and puts assets into the trust for distribution later on.

trustee is a person the grantor names to administer the trust – following the instructions laid out in the trust documents and ensuring that beneficiaries receive their designated assets as appropriate. A grantor may name more than one trustee or name a successor trustee who can step into the position of trustee if the individual(s) originally designated can no longer manage the trust.

The beneficiaries are those who receive assets from the trust.

Typically, the grantor, the trustee and a notary sign the trust document. This document is crucial when it comes time for the trustee to administer to the grantor’s estate.

There are two basic types of trusts:

  1. Revocable and Irrevocable Trusts
  2. Testamentary Trusts

Revocable and Irrevocable Trusts

Revocable and Irrevocable Trusts are created during the grantor’s lifetime and may or may not allow active management of the assets contained within them.

A grantor can make changes to a revocable trust at any point during their lifetime. But, contributions to an irrevocable trust shift ownership of assets outside of the grantor’s estate immediately. So the grantor can’t make changes without the trust beneficiaries’ consent.

A trustee manages both types of trusts and distributes assets to beneficiaries after the grantor’s death at a designated time. These trusts allow a trustee to immediately take care of the grantor’s end-of-life affairs and distribute assets without having to go through probate. 

Note that trusts can only manage assets. You can’t use one to appoint a guardian for minor children.

Testamentary Trust

A testamentary trust is created upon the death of the grantor by their last will and testament. It allows the grantor to manage their assets outside of a trust during their lifetime.

It is often used when the grantor’s beneficiaries are minors. Typically, this type of trust holds assets until the beneficiaries reach a certain age. For example, a testamentary trust may release money when a beneficiary turns 18 and needs access to funds for higher education. However, it does not avoid probate or the associated expenses – probate always accompanies the determination of the validity of a will and carrying out its instructions.

Note: A trust can be the designated beneficiary of a life insurance policy. If you have minor children and want to ensure that they gain access to the funds upon reaching adulthood, setting up a trust to be funded with the proceeds of your life insurance policy guarantees that your wishes will be followed. You have full control over how much the trust pays out to its beneficiaries and when it makes those payments.

If you participate in the Survivor Benefit Plan and have elected “spouse and child” or “child only” coverage and you have a dependent child or child with a disability who cannot care for themselves, you may use a special needs trust to designate payments to your beneficiary. Keep in mind, this is an irrevocable decision.

Setting up a trust typically requires the services of an attorney.

The most important consideration when it comes to wills and trusts is remembering to keep your documents updated. When your family circumstances change due to a birth, a death, a marriage or a divorce, it’s important that you alter your last wishes accordingly. It is also important that you update your documents when you experience major life events: deployments, moves, large purchases, etc. Review your wishes after any event that may change how you’d like your assets distributed.

Use our Estate Planning: Personal Log to compile all of your estate planning information. You can ensure the process of distributing your estate to your loved ones is done quickly and smoothly after your passing by including information about your will and any trusts you have set up – where to find original documents, the name of your executor or trustee, and anything else you would want immediately known.

Estate planning is an important step for military families but knowing how to get started can be tricky. Fortunately, Navy Mutual is here to help. If you need to change the beneficiary on your life insurance policy or an annuity, you can do so through your Navy Mutual Customer Portal. To discuss life insurance options or to make sure that your current insurance policy fits your needs, click here, or email us at [email protected].

The blog is meant to provide basic information that generally applies to most situations and should not be construed as legal or tax advice. It is not meant to replace the services of a financial planner, insurance counselor, attorney, or tax advisor. Information contained in this blog may change on occasion.

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About Navy Mutual

Navy Mutual is a nonprofit, federally tax-exempt Veterans Service Organization. Established as the Navy Mutual Aid Association in 1879, it is the oldest Congressionally recognized Veterans Service Organization. Today, Navy Mutual continues serving the military community by providing life insurance and annuities to members of the military services, and their families.

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