8 Steps to Create Your Estate Plan: For Federal Employees

What is estate planning? Estate planning is the process of arranging how your assets will grow, be protected, and be transferred efficiently and effectively. Estate planning doesn’t just involve planning events post-death but also includes planning for how your wishes will be carried out if you become incapacitated.

Estate planning is often a neglected part of the Federal employee’s overall financial plan.

This neglect is likely due to the misconception that estate planning is only for millionaires. However, every Federal employee needs an estate plan because everyone has an estate (think TSP, home, personal belongings, etc.). But what does an estate plan include? Here are eight steps to ensure your estate plan is up to par:

KEY TAKEAWAYS

  • Estate planning is for everyone and ensures your wishes will be carried out upon incapacitation or death.
  • Without proper planning, a court may decide what happens to your assets or your health upon incapacitation or death.
  • Every Estate Plan Should Have: A Will, Durable POA, Medical POA, Living Will, and Designated Beneficiaries for all financial accounts.

 1. Inventory What You Own

Although you may think that you don’t own enough to justify an estate plan, you will be surprised how quickly the value and quantity add up once you start taking stock of what you own.

Make a list of all of your valuable possessions: Homes, land, vehicles; if you have a net worth statement, then that will generally include everything of significant value. Having this list will help you determine how each asset should be handled upon your death or incapacitation.

 2. Define Your Wishes

Now that you know what’s in your estate, you can start to develop your estate plan. At the center of your estate plan are your goals. Some common goals are providing for loved ones, ensuring the orderly transfer and stewardship of assets, minimizing the costs of transferring assets, and planning for incapacity.

Make a list of what your goals are, who will receive what? What are your end of life wishes? Etc.

 3. Ensure Proper Titling

Understanding the implication of your assets’ titling is essential since different titling options have varying ownership transfer rules. For instance, the most common type of ownership is sole ownership. Any property with this titling will be part of your estate and pass to whoever you designated in your Will. However, property titled jointly with the right of survivorship transfer to the surviving owner and property titled tenants in common will transfer the deceased owner’s share to his/her heirs. Here are the most common forms of ownership:

  • Sole ownership
  • Tenants in Common
  • Joint Tenancy with Right of Survivorship
  • Community Property

Knowing how your property is titled is key to ensuring your property goes to the right person.

 4. Establish Your Directives

As veterans, we have experience with Wills and Powers of Attorneys (POAs); however, a complete estate plan often includes all of the following documents:

  • Will: A document declaring your wishes for distributing your property, naming guardians for minor children, and identifying the executor of your estate (individual in charge of your property after your death). It is also worth noting that a will won’t prevent your estate from going through probate (court proceeding your estate pays for in which a judge reads your Will and supervises the transfer of your property).
  • Durable Financial Power of Attorney (POA): Although most veterans have experience with POAs, here is a quick refresher. A durable financial power of attorney allows another individual to manage your financial affairs if you are not present or are incapacitated. Note: A “durable” POA does not terminate upon your incapacitation, whereas a simple POA would terminate. Additionally, you can limit POAs to certain areas (Special POAs) or make the powers broad (General POA).
  • Medical Power of Attorney: A legal document in which you designate an individual to make medical decisions for you if you become incapacitated.
  • Healthcare Directive (or Living Will): A legal document listing your medical preferences and desires if you cannot communicate due to incapacitation.
  • Trusts: Despite what you may have heard, trusts are not only for millionaires. In fact, a trust might be appropriate if you desire more control over how your assets are transferred after death, more privacy, and would like to avoid the expense and inconvenience of probate. Lastly, you may want a trust if you have minor children and would like to ensure that your estate is managed on their behalf.

 5. Review Your Beneficiaries

Your TSP, brokerage accounts, IRAs, bank accounts, and Federal Employee Group Life Insurance (FEGLI) all have beneficiary designations. These designations often outweigh what’s in your Will in deciding who will receive your account balances. Therefore, you must designate an individual for every account and keep them updated. It’s also essential that you name contingent beneficiaries. These backup beneficiaries are critical in cases where the primary beneficiary dies before you and is not updated.

Note: Don’t name a minor as a beneficiary as they cannot legally take possession of your accounts. Also, all assets passing via beneficiary designation will avoid probate.

 6. Review Your State’s Estate Tax

Estate planning is often undertaken to minimize estate taxes. However, most Federal employees don’t have to worry about Federal estate taxes since the exemption amount for 2020 is $11.58 million. Therefore, if your estate is under the exemption amount, you will not have to pay any federal estate taxes. That being said, some states do levy estate or inheritance taxes, so make sure you know your state’s estate tax laws.

 7. Consider Professional Help

When creating your estate plan, you will need to consider the federal and state laws governing your situation. The process can be complicated, and the consequences of errors can be significant. Therefore, consulting a professional such as a financial planner or estate attorney is highly recommended.

 8. Review Periodically

As your life changes, so should your estate plan. You should review your estate plan at least annually, especially when major life events occur, such as marriage, divorce, the birth of a child, or the passing of a loved one. Reviewing your plan at least annually will ensure your plan stays up to date.

Final Thoughts

Often estate planning involves more than simply drafting a Will; it’s the process of ensuring your family and other beneficiaries will be provided for and that your wishes will be carried out upon your incapacitation or death. Although these eight steps are a great starting point to understand and creating your estate plan, this article should just be the starting point. Since estate planning can be complex and the consequences of an error can be significant, it is recommended that you consult with a qualified financial planner or estate attorney.

Author: Jose Armenta, MsBA, ChFC®, EA

Jose is a financial planner who writes about Federal Government employee benefits in a way that is easy to understand.

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