NICHOLSON NOTE: I am republishing this article which appeared in the Kiplinger Letter. The information presented by the author has not been verified and you should consult your own lawyer or estate planning specialist as to how the views expressed here affect your own personal situation.
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Estate Planning for Military Families
By Kimberly Lankford, May 27, 2016
Published in the Kiplinger Letter
Members of the military and their families have access to low-cost life insurance and legal assistance to draw up crucial documents, among other benefits.
What special estate-planning issues do military families need to know about? Is help available?
Members of the military have special estate-planning needs, especially when they’re deployed, but they also have access to special benefits and resources.
Sign up for low-cost life insurance. Life insurance is always important if someone is depending on you financially, and it’s particularly important if you’re heading to a combat zone. Active-duty members of the military have access to special low-cost term life insurance, Service members’ Group Life Insurance (SGLI). It costs only 7 cents per $1,000 of coverage per month, or $336 a year for the maximum $400,000, regardless of your age, health or likelihood of being deployed. Service members can also get $100,000 in coverage for a spouse for as little as $60 a year if the spouse is under age 35 (coverage costs more for older spouses). See the life insurance page at the Department of Veterans Affairs site for more information.
Get your legal documents in order.
The legal assistance office at your base can help you create the legal documents most families need, including a will (which will specify a guardian for your children). You can also create a power of attorney and a health-care proxy, which let someone handle your finances and health-care decisions if you are unable to do so yourself. The power of attorney can be helpful while you’re deployed, to give your spouse or another person you designate the authority to handle your affairs while you’re inaccessible, at least temporarily. See the Legal Services Locator to find contact information for the military legal assistance office near your zip code.
Update your beneficiary information.
The beneficiary designations for your pension, life insurance, IRAs and thrift savings plan supersede the information in your will. If you designated a beneficiary when you first joined the service and haven’t changed it since you got married, for example, your original beneficiary could inherit your account. Make sure the beneficiary information is up-to-date, and review the designations whenever you have life changes, such as marriage, divorce or the birth of a child.
Make survivor decisions for your military pension. If you qualify for a military pension, when you retire you’ll need to decide whether to have your military retirement pay continue for your beneficiary after you die. You’ll generally pay 6.5% of the portion of the monthly pension payout you want your beneficiary to receive, which is deducted pretax from your retirement pay. (See the cost page for more information about the cost calculation.)
If you’re comparing this cost with the price of buying life insurance for your spouse instead, note that the policy would need to be permanent rather than term to be sure it would still be in effect when you die. Also consider that the military retirement pay continues to increase with the cost of living. For more information about how the program works and the options for your beneficiaries, see the Defense Finance and Accounting Service’s Survivor Benefit Plan page.
Find out about other benefits for survivors.
For example, surviving spouses can roll over a military death gratuity and SGLI death benefits into a Roth IRA, even if the total is much more than the $5,500 annual limit, which lets the money grow tax-free for the future (the maximum SGLI death benefit plus military death gratuity is $500,000). You have one year after receiving the death benefits to roll them into the Roth. “Very few people realize that payments received from SGLI can be rolled into a Roth by the survivor,” says Bonnie Humphrey, executive vice president for AAFMAA Wealth Management and Trust, which manages money for military families. “We wish more younger surviving spouses knew about that because they may not need the money right away and this is a tremendous opportunity.”
For more information about several survivors benefits, see the Veterans Administration’s Dependents and Survivors Benefits resource.