(This article by Kimberly Lankford originally appeared in the September 2024 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

 

Your estate plan helps you control the future. It’s your opportunity to decide who inherits your assets, who takes care of any dependent children, and who can help if you’re unable to make financial or health care decisions for yourself. You might have worked with a legal assistance office on base to create a will and power of attorney documents before deploying earlier in your career, but as you get older and accumulate more assets — and your needs and goals change — it’s important to reassess your estate plan.

 

You might now have grown children and no longer need to worry about a guardian to take care of them, but you might want to focus on leaving a legacy that helps future generations. You might have accumulated property in several states and want to make sure it passes to your heirs smoothly. You might no longer be eligible for some survivor benefits you had when you were in the military and need to take steps to make sure your spouse has enough income after you pass away. It’s particularly important to reassess your estate plan if you have divorced and remarried and want to split up your assets between your current spouse and your children from a previous marriage. And as you get older and might be helping aging parents, the value of having legal documents for someone else to make financial and health care decisions for you if you’re unable to do so yourself becomes even more clear.

 

“The reality is that what was right for us in so many different aspects of our life 15 or 20 years ago isn’t necessarily right today, and I think there is a real need to go back and, if nothing else, affirm that the estate plan reflects their current situation as opposed to when they drafted those documents,” said MOAA Life member Lt. Col. Joseph “JJ” Montanaro, USA (Ret), a certified financial planner and relationship director at USAA military affairs. “Life as an empty nester looks a lot different than life with kids.”

 

[MOAA MEMBER BENEFIT: Prepare for Your Future With Everplans]

 

It’s a good idea to review your estate plan regularly to make sure it still reflects your wishes. “With my clients, we do it every other year at a minimum and anytime there’s a major life change — marriage, move, death, divorce, or goals change or maybe your kid has special needs,” said former Capt. Daniel Kopp, a certified financial planner and founder of Wise Stewardship Financial Planning in Sarasota, Fla., and a MOAA Premium member who served in the Air Force for nine years.

 

Estate planning includes updating your will, beneficiary designations, financial and medical powers of attorney, determining whether you need a trust, and making sure your spouse and other dependents have enough money to pay the bills in the future without your income. It’s also your opportunity to explain where you’d like the assets and property to go after you die and who you’d like to help you if you’re unable to make financial and health care decisions while you’re still alive.

 

“Who is going to make decisions and am I going to provide them guidance on those decisions?” said Montanaro.

 

He recommends including letters of intent with the estate planning documents and talking with your children and other heirs about your wishes ahead of time so they understand what you would like to happen.

 

“The one thing you don’t want to leave is a vacuum,” said Montanaro. “Letting our kids know our intent will make it easier on them and avoid a lot of potential conflict if we do fail to share our intent. I think a discussion is good, and the formal documents and a letter of instruction can be part of that.”

 

[MORE FROM MILITARY OFFICER: 5 Tips for Passing on Retirement Accounts]

 

Special Estate Planning Issues for Military Families

Military families have special estate planning needs — whether you’re still on active duty or you’ve retired from the military or separated from service and are in another career. You might be living in one state but maintain a legal residence in another while on active duty, or you might have accumulated property in several states, which adds an extra layer of complexity to the estate planning process.

 

The survivors of servicemembers who die while on active duty have access to benefits that change after you leave the military — and your heirs might not realize some of the benefits they are eligible for even if many years have passed since you left the service.

 

[SURVIVOR SCAMS: 4 Ways to Keep Your Benefits Safe]

 

The following steps can help with the special estate planning needs for military families.

 

Update your will, and decide whether you need a trust. Update your will to specify where you’d like your assets to go, whether it’s to your spouse, children, grandchildren, or charities. Your desires might change if your children are grown or you’ve accumulated more savings and you can afford to create a legacy to last for generations or to make a significant difference for a charity.

 

Estate planning can be complicated for military families because they might be legal residents of one state while living in another when they are on active duty, and they might own property in several states — accumulating houses while they served in different areas. After they leave the military, they become legal residents of the state where they actually live, even if they haven’t moved. Estate planning and probate laws vary by state, and it can help to meet with an estate planning attorney in the state where you live to coordinate the planning process.

 

“We typically go through an asset list,” said Gretchyn Meinken, an estate planning attorney and partner at Friedman, Grimes, Meinken & Leischner in Alexandria, Va., and daughter of a retired Army colonel. She tends to recommend a revocable living trust for military families who own property in several states, which simplifies the probate process.

 

“We’ll typically recommend a trust because we can deed those properties into the trust and they wouldn’t have to go through probate,” she said. “It’s a very flexible tool. It operates like a will because it says who will manage things and inherit things when you pass, but the trust does not go through probate.”

 

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You might also want to consider a trust if you want more control over how your money is passed along, such as if you’ve remarried but also want to help kids from your first marriage.

 

“Second marriages are a good example because the intent of most folks I work with is to take care of their current spouse but ultimately take care of their kids,” said Montanaro.

 

For example, you can set up a trust to provide income for a surviving spouse while ensuring that the funds remaining after that spouse dies go to the children from the first marriage, in addition to leaving assets to those children outright, said Meinken.

 

[FOR PREMIUM AND LIFE MEMBERS: Preparing for the Loss of a Military Spouse (PDF Download)]

 

Make sure your beneficiary designations are up to date. Money in your Thrift Savings Plan, individual retirement accounts (IRAs), other retirement savings plans, and life insurance pass to the beneficiaries you’ve designated, no matter what your will says. It’s especially important to update your beneficiary designations if you’ve been divorced or remarried or experienced other major life changes.

 

“Countless times, I’ve had people with their beneficiary designations going to ex-spouses because they didn’t update them,” said Montanaro.

 

Go through all of your accounts every few years — especially after significant life changes — and make sure the beneficiaries are who you want.

 

“Is my plan synchronized, and does it reflect my current wishes?” he said.

 

You might also want to change your beneficiary designations if your kids or grandkids have become adults or you want to leave some money to charity.  

 

[RELATED: Planned Giving: The MOAA Foundation]

 

Make tax-efficient inheritance decisions. Instead of considering the beneficiary designations of each account separately, look at your overall assets and make tax-smart decisions about who should inherit what.

 

For example, your heirs have to pay taxes when they withdraw money from tax-deferred accounts they’ve inherited, such as traditional IRAs and other retirement accounts. But if they inherit taxable brokerage accounts and other property, they benefit from a step up in basis after you die —meaning that they don’t have to pay taxes on the increase in value while you were alive. However, if you want to leave some money to charity, a 501(c)(3) nonprofit won’t have to pay taxes on an IRA it inherits. Because of these tax rules, you might want to leave some money in tax-deferred retirement accounts to charity and leave other assets to your kids or grandkids.

 

“Part of estate planning is looking at each individual kind of asset you have—property, retirement accounts, brokerage accounts, accounts in trust,” said Kopp. “Within the retirement accounts, anything that’s traditional tax-deferred we’ll leave the spouse as the primary beneficiary, but we’ll take a portion of the contingent beneficiary and direct it to a 501(c)(3) charity. If they receive tax-deferred assets, they can take it and not pay tax.”

 

[RELATED: What to Do If You Inherit a 401(k) or TSP Account]

 

Choosing which accounts to pass along based on the tax benefits can make a big difference in the amount of money the beneficiaries can keep.

 

“If you give assets with a step up in basis to your kids and tax-deferred accounts to a charity, this can move the needle by thousands of dollars,” he said.

 

“Do it in a tax-efficient way,” said Montanaro. “If I had a $400,000 IRA and a $400,000 taxable account and I wanted to give money to a charity and the kids, I’d rather give the kids the taxable account and the charity the IRA.”

 

[RELATED: These Tax Rules Will Expire in 2025]

 

Make careful decisions about the Survivor Benefit Plan (SBP). Before you retire from the military, you need to make a very important decision: whether you want your military retirement pay to continue for your spouse after you die, called the SBP.

 

“The survivor benefit decision of how to protect the spouse or children if the military member dies is the most important decision that the retiree will make in his or her life,” said Kopp. “It’s enormously crucial to make a well-informed decision.”

 

The maximum SBP continues to provide your surviving spouse with 55% of your retired pay for their life after you die. For example, if a veteran was receiving $5,000 a month, the surviving spouse would get $2,750 a month for the rest of his or her life, said Capt. Paul Frost, USN (Ret), AFC®, MOAA’s program director for financial and benefits education, counseling, and veterans services. The maximum SBP costs 6.5% of your retired pay for up to 30 years, which would be $325 a month on a $5,000 base pension.

 

[FROM DEFENSE.GOV: Survivor Benefit Program Details]

 

Andrew Hook, president of Hook Law in Virginia Beach, Va., and an elder-law attorney who works with many military families, generally recommends the SBP, but some people decide to skip those premiums and buy life insurance instead. In that case, you need to make sure the life insurance never lapses or the spouse will end up without the death benefit or income after you die.

 

“I’ve had to sit with widows whose husbands didn’t accept the survivorship pension,” said Hook. “The spouse was told they’d take the savings and buy life insurance and still have more money. If you bought enough life insurance, you may be able to do that, but that survivorship pension is a great deal. In many cases, the insurance was woefully inadequate.”

 

A disabled child can also be the beneficiary of the SBP, but you need to be careful. “Many disabled children have to be on public benefits. If the child gets the pension, that could make them ineligible,” said Hook. “That was a big problem. But now you can put it into a first-party special needs trust.”

 

Work with an estate planning attorney to draft the specific kind of trust, and then file the paperwork with the Defense Finance and Accounting Service assigning the beneficiary to the disabled child’s trust.

 

[RELATED: Time for an Account Checkup? Be Sure Your DFAS Information Is Up to Date]

 

Make the most of military benefits for survivors. Part of estate planning is making sure your dependents have enough money to pay their bills after you die. While you’re on active duty, your spouse and children have access to several survivors’ benefits that can help them financially. For example, you can get the maximum Servicemembers’ Group Life Insurance (SGLI) of $500,000 for $30 per month.

 

Spouses and children of eligible veterans and servicemembers who died in the line of duty can receive survivors’ and dependents’ educational assistance to help cover college costs.

 

[FROM VA.GOV: More on SGLI | More on Survivors’ and Dependents’ Educational Assistance]

 

These benefits can change after you leave the military, and you might need to adjust your estate plan to help fill in the gaps. You might still have access to other benefits for survivors, but you might need to take steps to apply or might need to meet certain time frames.

 

For example, SGLI generally ends after you leave the military, but you have up to 485 days after your discharge to apply for Veterans’ Group Life Insurance (VGLI). And if you buy it within 240 days after leaving the military, you can qualify for coverage without medical underwriting.

 

“For veterans who have high disability ratings, a lot of them will consider VGLI because they might not be able to get life insurance on their own,” said Frost.

 

The premiums are based on age bands and start out relatively low — $80 a month for the maximum $500,000 for ages 40-44 and $105 for ages 45-49 and gradually increasing every five years, hitting $495 a month for ages 60-64 and $735 a month for 65-69 and continuing to rise.

 

[AT VA.GOV: Updated VGLI Premiums]

 

If you’re relatively healthy, however, you might be able to get life insurance with a level premium for 20 or 30 years on your own — the younger and healthier you are when you buy the policy, the lower the premiums will be.

 

If you are receiving VA disability benefits, your spouse might qualify for Dependency and Indemnity Compensation after you die, which is currently worth up to $1,612 a month for surviving spouses of veterans who died on or after Jan. 1, 1993.

 

To qualify, the veteran must have died from a service-related injury or illness, or must have had a 100% permanent and total disability rating for at least 10 years before their death, or met a few other criteria.

 

[AT VA.GOV: Dependency and Indemnity Compensation]

 

The surviving spouse must apply for the benefits; they won’t be paid automatically.

 

If the servicemember died because of a service-related injury or illness, then “it needs to be clear on the death certificate that it was a service-connected condition,” said Frost.

 

In the past, surviving spouses couldn’t receive both the SBP and the DIC, but that restriction was lifted and gradually phased in. Starting in January 2023, an eligible spouse can now receive both benefits in full, said Frost.

 

[FROM 2023: ‘Widows Tax’ Will Be Completely Gone as of Feb. 1 Benefit Checks]

 

To find out which benefits your surviving spouse might be eligible for and for help applying, you can meet with a veterans service organization representative, who can provide free assistance. Retirees can also get help from the Retirement Services Office at major installations, said Frost.

 

Kimberly Lankford is a financial expert based in Virginia and the spouse of a retired Army colonel.