Estate planning is important, especially for military members
"The number one takeaway is have a plan, and then revisit that plan often," said Brian Luther, president and CEO of Navy Mutual Aid Association.
Anyone with a career, assets and perhaps a family needs a little estate planning. It might be arcane, but it matters unless you plan to live forever. Military service members sometimes have higher risks, so they need to think about estate planning too. For some tips, the Federal Drive with Tom Temin turned to the President and CEO of the Navy Mutual Aid Association, Brian Luther.
Interview transcript:
Tom Temin And what exactly is estate planning? Let’s start with the definition here.
Brian Luther At its foundational level, it’s a plan to ensure that one’s assets are transferred to their loved ones or non-family members or charitable organizations in the most financially efficient manner possible. Or it aligns specifically with the wishes [or] desires of the client. That’s the fundamental definition of it.
Tom Temin So basically, you can put anything in your estate plan as long as it’s legal, correct?
Brian Luther Right. Yeah. And it looks a lot like financial planning with data gathering and understanding where all assets, liabilities, accounts, passwords, all that stuff is located. But an estate plan is needed for all individuals regardless of a wealth level.
Tom Temin And neither one of us is an attorney. But in general, if you die without an estate plan, then do immediate heirs – children, say, or surviving spouses – automatically get what you have in the absence of an estate?
Brian Luther No. So the first part of your estate process would be doing a will. If you die without a will, you’re intestate. And that means that everything has to go through the state, which takes a long time and could be costly. If you have a will, then you have an executor and then your estate will be handled by the will. It still goes through probate. But now it has direction. You have a will that’s authenticated. The executor is appointed and then that person is authorized to go through and negotiate the closing of accounts, grabbing the assets, determining the date of death, death certificate, going to all those accounts and then getting the transfer to theirs. They have to pay the debts of the decedent. They have to prepare and file tax returns because there’s always a tax consequence of some sort. Even if there’s not, you have to identify that there’s not. And then finally, when all that is done, the estate is distributed to whoever.
Tom Temin On that question of debt. What about credit card debt? Suppose someone charged dinner or something.
Brian Luther It’s all part of what when you set it out, the decedent’s estate, when you’re going to probate it. That’s a methodical method to settle everything, including those. But often banks and credit cards are looking for that you get a letter from the probate court that says, “I’m authorized to speak” unless beforehand you set up a power of attorney or you set up joint accounts, which is part of what an estate planning is. So if you’re the executor for your parents, there are some things like often funeral homes don’t take credit cards, so they’re going to look for a cash payment. Well, if the estate has money in it and you’re a joint account, then you can draft the money in and pay for it. Otherwise, the executor is going to have to come up with the funds themselves from somewhere else until the estate is settled.
Tom Temin Sure. Sounds like dying is really a pain in the neck when you come to think of it.
Brian Luther You would think that even for small estates that it could be handled quickly. But once you get into a probate and you get into the court where there’s ambiguity, they want to make sure that they’re handling everything exactly right, because if not, then it causes this multi-generational ripple effect. They prefer to get it slow but steady and get it done. But there are people with stories of probate taking a couple of years to settle an account, even with a will. And so if you don’t have a will, it’s going to be a much longer evolution.
Tom Temin We’re speaking with Brian Luther, a retired Navy admiral, now president and CEO of the Navy Mutual Aid Association. And in the federal and military context, are there any special considerations such as your pension?
Brian Luther Yes. So the military sets up many, many features. So you’ll start out with often for a retiree, they’re offered the survivor benefit plan. And so for your spouse, the survivor benefit is a plan that will ensure that there’s income for your loved one after you pass. The [Department of Veterans Affairs] provides benefits. But again, they pay for various things, but not a complete funeral. So when you’re going through and you’re planning for your end of life and your afterlife, which is all part of estate planning, those considerations need to be taken in. What benefits are provided to me, what do the benefits cover? And then what am I going to need to cover, my estate going to need to cover after the fact?
Tom Temin And then the person is likely to have a thrift savings plan account and that would be treated the way for civilians or people outside of government have to treat their 401Ks and IRAs.
Brian Luther Exactly right. So ironically, I am as guilty of this as the next person. My wife is retired from federal service and she’s transferring her TSP to a financial adviser, and she asked for my assistance and I happened to look at it while we were logging on. And under beneficiaries, it had no beneficiaries, and under spouse, it had no spouse. So we’ve been married for the 25 years she’s been in federal employment, and that sheet passed. And those accounts, those investment accounts you mentioned, they go to the beneficiary. So here’s this big gap. So for all the attention I pay on our combined stuff, and my assumption [was] that it was done on that side. So you want to ensure all your retirement accounts, investment accounts have beneficiaries because they’re going to transfer directly to the beneficiary in those cases.
Tom Temin I guess it’s better to find nobody is beneficiary, than some guy you never heard of.
Brian Luther Yes. Who exactly is Carlos the pool boy? Yes, that would be awkward.
Tom Temin All right. Let’s get to the beginning here. What are the basic elements of an estate plan then? It sounds like a will is a prerequisite.
Brian Luther Exactly. A will is a good start depending on the assets. A trust is also another thing. A trust allows you to avoid probate because your assets are transferred into the trust. So if you have a trust with you and your spouse and one spouse passes, you’re both in the trust, the assets are in the trust. It’s an automatic flow. And then you can set up a trust if you have children, to pour over directly to your children. And so that avoids the probate experience altogether. You can go to a lawyer to get that. Our company and many other veteran nonprofits are offering discounts to a company called Trust & Wills, which allows people online to work it. But your estate plan also needs to consider your health and what you’re going to be doing with Medicare, if you’re going to need long term care. I mentioned the benefits associated with your military service. You may have employer benefits. You want to look at your housing options. You want to look at your aging issues. And then, as I said, you want to make sure you have either your legal documents all in a place that can be found. And if you’re going to provide powers of attorney, you need to have those powers of attorney and you can create a power of attorney for different requirements. You can have a springing power of attorney, which comes into effect at an event of like incapacitation. Or you can create a durable power of attorney that you say, I’m going to transfer this responsibility to this individual. Again, a lawyer, a dedicated financial advisor, will have a team that can bring you into these these different areas, bring the areas of expertise and to help you out.
Tom Temin And of course, if you have a life insurance payout at the time of your demise, that would be part of this plan. Just review for us briefly what are the life insurance considerations for members of the military, especially those that might be exposed to combat.
Brian Luther While you’re active duty, you’re part of the group insurance and it’s called Servicemen’s Group Life Insurance. And as a group policy, it’s only there for while you’re a member of the group. So as you leave the military, typically people will look to replace that. And that’s a place where my company comes in. And so depending on what assets they have, some people can be self-insured and some people want to replace the SGLI with with an additional thing. Life insurance, it pays out tax free benefit to the beneficiaries. And so it has some benefits for the estate. A lot is it provides an immediate influx of liquidity to handle any estate, like we talked about before, any estate costs. It allows to pay off any of those debts. It takes away the need for short term cash. It also helps out with the estate. You can equalize inheritance among your kids because if you’re trying to sell something in a hurry that’s not easily sold, you’re going to take a hit on that. So if you have an asset or a business, something along those lines, and then you have a life insurance policy, you can say, here’s a value to to this interested family member. And then I level it out with the life insurance. Again, it’s unique to the individual’s needs.
Tom Temin It sounds like your estate plan, though, is something you should review and update as you move through your own life cycle. Single, married kids, no kids, whatever.
Brian Luther Absolutely. In every talk I give, I get asked at some point, what is the number one takeaway? And the number one takeaway is have a plan, and then revisit that plan often. I ask people, how many people have a home and a large percentage raise their hand. How many people mowed their lawn one time? And just you have to do regular maintenance on a financial plan. You have to do regular maintenance on your estate plan. It’s all holistically linked together. And to your point, it just goes through phases of your life. And then as you have a life change, you update your plan and then it’ll be there for you. And mostly it’ll be there for the survivors. Because if you do this in a deliberate fashion, your intent and desires are known and they can respond to that instead of having a heartbreaking conversation over a hospital bed.
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Tom Temin
Tom Temin is host of the Federal Drive and has been providing insight on federal technology and management issues for more than 30 years.
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