Estate Planning for Military Families

By Barbara O’Neill, Ph.D., CFP®

OneOp recently held a webinar titled The Importance of Estate Planning for Military Families. The webinar discussed estate planning tools and techniques, document storage, and common estate planning myths.

Below are ten take-aways for Personal Financial Managers and other financial educators:

Estate Planning Definition – Estate planning is a continuing process of arranging for the use, conservation, and transfer of a person’s property/wealth during life and upon death. Components of estate planning include taking care of one’s family, making bequests, appointing fiduciaries, and planning for disability/incapacity.
Property Transfer Methods – Common techniques to distribute assets are to do nothing and have assets be distributed under state intestacy laws, joint tenancy with right of survivorship, beneficiary designation transfers (e.g., life insurance policies, Thrift Savings Plan [TSP], IRAs) and transfers made via wills and trusts.
Types of Estates – A gross estate is everything that a deceased person owns, including life insurance, and is important for estate tax calculation purposes. A probate estate is everything that passes to others through a will and a non-probate estate is everything that passes to others outside a will (e.g., IRA and TSP beneficiaries).
Probate and Non-Probate Assets – Probate assets include solely titled property and property held with others as tenants in common. Non-probate assets include those held jointly with right of survivorship, with tenancy by the entirety (married couples), and with payable/transfer on death (POD/TOD) or beneficiary designations.
Probate Process – Probate is a public, court-controlled process where a decedent’s will (if any) is validated, probate assets are gathered, debts/claims are paid, taxes are determined and paid, and remaining probate assets are distributed according to the terms of a will or via state intestacy law if there is no will.
State Property Transfer Laws – Some states allow their residents to name a transfer on death beneficiary for motor vehicles (CT, DE, VT, MD), real property (AK, AR, CO, DC, HI, ME, MN, MS, MT, NM, ND, OK, OR, SD, UT, WA, WV, WI, WY) or both (AZ, CA, IL, IN, KS, MO, NE, NV, OH, TX, and VA).
Living Trusts – Living (a.k.a., inter vivos) trusts are created during a person’s lifetime and can be revocable or irrevocable. They are often created to avoid probate (privacy) and to reduce someone’s taxable estate. Trusts must be funded to work, which means that the creator must transfer assets to the trust by retitling them.
Will Components – One major part of a will is bequests of personal property and real estate as well as specific bequests and a person’s residuary estate (i.e., the rest of their “stuff”). Other sections include the establishment of testamentary trusts and appointment of fiduciaries (e.g., executor(s) and guardian(s) for minor children).
Estate Tax – The 2022 federal estate and gift tax exemption is $12,060,000 for individuals (double for couples with a portability election). Therefore, most estates owe nothing. However, 12 states (CT, DC, HI, IL, ME, MA. MN, NY, OR, RI, VT, WA) have state estate taxes on various estate values and six states (IA, NE, KY, PA, NJ, MD) have state inheritance taxes that tax certain heirs.
Powers of Attorney – Power of Attorney (PoA) documents appoint an agent to manage someone’s affairs without court supervision. They end when the creator dies. Four types of PoA are general (provides a broad range of powers), special (provides authority for a limited purpose such as selling a car), springing (takes effect upon an event such as the creator’s incapacity) and durable (remains in effect after the creator is incapacitated).