Estate Planning for Military Service Members, Veterans, and their Families

JGB April 2024 Newsletter

An estate plan is important for all families, military and civilian; however, estate planning for military personnel and their families involves unique considerations and benefits that warrant special attention. This article briefly explores issues military families should consider when preparing their Estate Plan.

Key Considerations for Military Families

Military Families face unique challenges and often have government or insurance benefits that should be addressed in their estate plans:

1. Legal Assistance vs. Civilian Counsel: Military legal assistance offices offer valuable estate planning services (as well as help in other personal legal matters), although consulting civilian estate planning attorneys for specialized expertise may be beneficial.
2. Relocations: Consider how frequent relocations may impact your estate plan, including the need to update documents regularly.
3. Military Benefits and Survivor Benefits: Ensure that beneficiary designations on military benefits and insurance policies such as Servicemembers' Group Life Insurance (SGLI), Veteran’s Group Life Insurance (VGLI), the Active Duty Survivor Benefit Plan (ADSBP), the Survivor Benefit Plan (SBP), and Dependency and Indemnity Compensation (DIC) and other survivor benefits are aligned with your estate plan.

Military Legal Assistance – A Great Starting Point

An important benefit for active duty and retired military families is access to military legal assistance. A legal assistance attorney is a military judge advocate (JAG) or a Department of Defense civilian attorney who is licensed to practice law before the courts of one or more state and federal jurisdictions and is authorized by The Judge Advocate General of one of the military services to advise and handle certain civil legal matters, such as landlord-tenant disputes, family law, naturalization, consumer issues, the Servicemembers Civil Relief Act, and estate planning.

At no cost to the client, legal assistance attorneys can draft core estate planning documents that provide a strong framework for their wishes. Key components of a basic estate plan include: Wills and Trusts, Powers of Attorney, and Advance Medical Directives.

Wills and Trusts : A Will or a Trust names a fiduciary and provides instructions on how the estate assets should be distributed. Those instructions often include special instructions to provide for minor children and children who have special needs or were born in a prior relationship.

ensuring prudent management of inherited assets. The testamentary trust is created in Probate and is subject to supervision by the court until the child reaches the designated age.

Probate is the court-supervised procedure that validates a will and oversees the distribution of assets. However, probate proceedings come with certain drawbacks. They can be expensive, with costs often amounting to 3-5% of the estate's value. Additionally, probate can be time-consuming, lasting anywhere from 1-3 years on average, and involves a myriad of paperwork and administrative complexities.

To circumvent the pitfalls of Probate, many individuals opt for Revocable Living Trusts. These trusts offer several advantages over traditional wills. They enable cost savings by avoiding probate expenses and facilitate efficient asset transfer without the delays associated with court proceedings. Moreover, trusts offer a level of privacy that probate proceedings do not, maintaining confidentiality throughout the distribution process. More information about Revocable Living Trusts is available at our website, JGBLLP.com.

Powers of Attorney: A Power of Attorney (POA) authorizes a designated person to act on the grantor’s behalf. Depending on the type and content of the POA, this may include managing finances, paying bills, accessing bank accounts, and making legal decisions. Military legal assistance offices can draft different types of Powers of Attorney, tailoring them to your specific needs. A General Power of Attorney grants broad authority to handle all financial and legal matters while a Special Power of Attorney might be used for specific situations, like selling a car or handling the shipment of household goods. A Family Care Plan/In-Loco Parentis Special POA allows the grantee to care for your child(ren). Many legal assistance offices have policies limiting the duration of a POA to one year, except for a Springing POA, which only becomes effective if the person granting it (the “principal”) becomes incapacitated.

Health Care Power of Attorney and Living Will: A Health Care Power of Attorney and a Living Will outline your healthcare preferences and designate someone to make decisions on your behalf if you are unable to do so. When deciding on a Health Care Agent, it's best to choose someone you trust and who knows you well. You should talk to that person to make sure they are willing to be your Health Care Agent and willing to carry out your wishes.

Legal assistance attorneys can provide sound legal advice and draft Will-based estate plans. However, for individuals with intricate financial or family circumstances, relying solely on military estate planning services is not optimal. You may require one or more trusts to help you ensure sufficient support for family members with special needs while preserving their eligibility for needs-based assistance. Also, legal assistance support does not extend to servicemembers’ private business ventures, which means that they cannot draft the necessary documents to help clients address the estate planning implications of owning a rental property or working farm, an S Corporation, or an interest in an LLC. In these situations, seeking professional guidance from an experienced, civilian estate planning attorney will help you to make informed decisions that safeguard your assets and ensure your loved ones are adequately protected..

Frequent Relocations

Military families are masters of adaptability, accustomed to packing up and relocating at a moment's notice. While federal laws offer a blanket validation for military Wills and POAs across all states, other legal aspects such as property ownership, taxes, and family law may still vary from state to state.

A person's Will typically needs to be probated in the state where they were domiciled at the time of their death. Domicile refers to the state where an individual has their permanent home and intends to return to if they are temporarily absent. However, if the deceased owned real estate or other assets in states other than their domicile state, ancillary probate proceedings may also be required in those additional states to address the disposition of those assets according to local laws. This introduces layers of complexity, extending the duration of estate settlement and raising legal costs.

Due to the potential complexities involved in multistate probate proceedings, many military families choose to implement probate avoidance strategies in their estate plans. For instance, Revocable Living Trusts serve as effective tools for transferring assets outside of probate and streamlining the distribution process. By placing real estate and other assets into a Revocable Living Trust, military families can ensure a smoother transition of ownership and avoid the necessity for separate probate proceedings in each state where their property is located.

Aligning SGLI/VGLI/ADSBP/SBP/DIC and Other Beneficiary Designations with Your Estate Plan

The Department of Veterans Affairs (VA) offers a range of benefits that can significantly impact a veteran’s life and should be a key consideration in any comprehensive estate plan. It’s crucial to consider how VA benefits fit into the overall picture. Payments sent to the veteran will end, but eligible surviving spouses and dependents may receive other financial assistance, healthcare assistance, and/or education opportunities. These benefits should be coordinated with other estate elements to ensure a seamless transition and maximization of available resources.

Military members and veterans designate beneficiaries for a myriad purposes, such as Arrears of Pay (a retiree’s final paycheck), the Thrift Savings Plan (TSP), bank accounts, and various VA benefit programs. Ensuring that beneficiary designations are up-to-date and accurately reflect the individual's wishes is crucial to guaranteeing that these benefits are distributed according to their intentions.

A brief summary of several key VA programs:

The Servicemembers’ Group Life Insurance (SGLI) offers active duty servicemembers term life insurance benefits of up to $500,000, which are disbursed to a designated beneficiary upon the servicemember’s demise. The Veterans’ Group Life Insurance (VGLI) provides a seamless transition for servicemembers leaving the military, allowing them to convert their SGLI coverage and maintain life insurance protection.

Both military pay and retired pay end with the death of a servicemember, but the Active Duty Survivor Benefit Plan (ADSBP) provides an annuity for the spouse and/or dependent children of servicemembers. The ADSBP provides an annuity based on the retired pay the servicemember would have received, while the Survivor Benefit Plan (SBP) enables a retiree to designate an eligible beneficiary (spouse, ex-spouse, or dependent child) to receive a portion of their retirement pay after death.

Dependency and Indemnity Compensation (DIC) provides tax-free benefits to survivors of servicemembers who passed away on active duty or from service-connected injuries or diseases. It's important to understand that SBP payments to a surviving spouse may be offset by the amount of spousal DIC compensation received.

Common Mistakes to Avoid When Designating Beneficiaries

When designating beneficiaries, it’s crucial to avoid common mistakes that can complicate your estate plan and potentially cause distress for your loved ones. Here are some key errors to steer clear of:

1. Failure to Designate a Beneficiary: Neglecting to name a beneficiary for accounts such as life insurance policies or retirement plans can have unintended consequences. Without a designated beneficiary, the assets may be distributed according to the default rules of the account custodian, which may not align with your wishes.
2. Outdated Beneficiary Information: Life is dynamic, and significant life events such as marriage, divorce, or the birth of a child necessitate updates to your beneficiary designations. Failing to keep this information current can result in unintended individuals receiving your assets, leading to disputes and legal challenges. There have been instances where benefits were paid to ex-partners or distant relatives due to outdated or absent beneficiary designations.
3. Not Naming Contingent Beneficiaries: While designating primary beneficiaries is crucial, overlooking contingent beneficiaries can be a costly mistake. In the event that the primary beneficiary predeceases you or is unable to accept the benefit, having a contingent beneficiary ensures a smoother transfer of assets and avoids the assets going through probate.
4. Overlooking the Impact on Minors or Special Needs Beneficiaries: Directly naming minors or individuals with special needs as beneficiaries can create legal complexities and jeopardize their eligibility for government benefits. Designating a trust can provide a more suitable solution, offering protection and ensuring proper management of assets for these beneficiaries.
5. Not Coordinating with Your Will or Trust: It's essential to understand that beneficiary designations supersede the instructions laid out in your Will or Trust. This means that if you intend for assets to be held in trust for a beneficiary, it’s vital to list the trust as the beneficiary – otherwise it will go directly to the person you listed. It's crucial to ensure that your beneficiary designations align with your overall estate plan to prevent conflicts and confusion among your heirs.
6. Ignoring Tax Consequences: Certain assets carry tax implications for beneficiaries. Failing to consider these consequences can result in unexpected tax burdens for your loved ones. Understanding the tax implications of your assets can help you plan more effectively and potentially minimize tax liabilities for your beneficiaries.
7. Failing to Review Regularly: Beneficiary designations should not be a one-time task. Regular reviews, especially after significant life events, are essential to ensure that your beneficiary designations reflect your current intentions and circumstances.

Properly designated beneficiaries ensure that assets and benefits are distributed according to the deceased servicemember or veteran's wishes and provide vital financial support to their loved ones during challenging times. Outdated or missing beneficiary designations can be disastrous.

Military Benefits and Survivor Benefits

Veterans can take several steps to ensure their spouses and family members can more smoothly navigate through the network of benefits available to them:

• Understand the Benefits: Veterans and their families should familiarize themselves with the benefits they are eligible for. This includes caregiver support, health care, life insurance, education and training, and more.

Note: On March 5, 2024, the VA announced that all Veterans who were exposed to toxins and other hazards while serving in the military – at home or abroad – are now eligible to enroll directly in VA health care. According to the VA’s press release:

"This means that all Veterans who served in the Vietnam War, the Gulf War, Iraq, Afghanistan, the Global War on Terror, or any other combat zone after 9/11 are eligible to enroll in VA health care without first applying for VA benefits. Additionally, Veterans who never deployed but were exposed to toxins or hazards while training or on active duty in the United States are eligible to enroll … [t]his expansion of VA health care eliminates the phased-in approach called for by the PACT Act – meaning that millions of Veterans are becoming eligible for VA health care up to eight years earlier than written into law.”

Detailed information is available at VA.gov/PACT or you can call 1-800-MYVA411 to lean more.

• Open Communication: Discuss your military and VA benefits with your spouse and family members. Make sure they understand the range of benefits they’re entitled to, including pension benefits, healthcare, and survivor benefits.
• Organize Essential Documents: Gather critical documents such as your DD214, marriage certificate, medical records, VA rating decision notices, information on life insurance, and pre-need eligibility documents for burial benefits. These documents are vital for accessing benefits and navigating administrative processes after your passing.
• Transfer of GI Bill Benefits: If you have unused Post-9/11 GI Bill benefits, consider transferring them to eligible family members.
• Plan for Funeral and Burial Arrangements: Discuss funeral and burial preferences with your family. Veterans with an honorable or general discharge from service can be buried in any VA national cemetery with available space. Consider options like burial in a VA national cemetery (there are over 150), a state veteran’s cemetery, or a private cemetery. Make sure your wishes are clearly documented.
• Pre-Need Eligibility Assessment Letter: Consider obtaining a pre-need eligibility assessment letter from the VA. This letter determines in advance whether a veteran or their family members are eligible for burial in a VA national cemetery. This proactive step can provide peace of mind and make the process smoother during a difficult time.
• Leverage Resources and Organizations: Explore websites like MilitaryOneSource and the VA Benefits Website for comprehensive information on available benefits and application processes. Organizations like the American Legion, VFW, and DAV offer advocacy, support, and resources for veterans and their families.

Estate planning is more than just drafting documents; it’s about ensuring that your family’s future is secure. Consult with your estate planning attorney and financial advisor to make sure that your estate plan accurately reflects your intentions and circumstances and regularly check your beneficiary designations and asset coordination to ensure that they align with your estate plan.