Estate Planning for Military Families

Estate Planning can be daunting for anyone. The dizzying array of benefits and options coupled with the emotional charge of knowing that a loved one may be in harm’s way when serving the country adds additional challenges to the process. This article briefly explores the unique issues military families face when preparing their Estate Plan. We will continue this subject with a subsequent newsletter covering estate administration for military families.

Basic Estate Planning

Military families’ estate needs begin with those shared by civilians: making legal plans to designate what will happen at death or incapacity. To plan for death, one uses a will or trust to designate a person to be in charge. This person is called various names depending on their charge: Executors execute Wills, Trustees manage Trusts, Guardians rear minors, agents take action for living people, etc. All of these positions are covered by the term ‘fiduciary,’ which Marines will recognize means ‘one who is faithful.’ A Fiduciary has a duty of loyalty and faithfulness to the person who made the Will/Trust/Power of Attorney and is liable in criminal and civil actions for breach of that duty.

The Will or Trust (the differences are discussed later in this article) names a fiduciary and gives instructions on what to do with the estate assets. Those instructions often include special instructions to provide for children that are minor, have special needs, or were born in a prior relationship.

A Financial Power of Attorney names an Agent to handle financial and legal affairs. While JAG Powers of Attorney signed before deployment often have an expiration date, the civilian estate planning version typically does not. Medical Powers of Attorney and Living Wills provide information on what health care you wish to receive and who is to make choices if you are not able to do so.

All such documents are governed under state law and can encounter some friction when moving between jurisdictions. It is always a good idea to have your plan reviewed when moving to a new state. We have several other publications on estate planning for families that can be referenced for more information.

Special Concerns for Military Families

Anyone can be easily confused by the array of benefits available to servicemembers. This section will focus on the death benefits and what can be done in advance to integrate them into an estate plan. One benefit active duty and retired military families receive is access to the JAG corps for legal assistance in drafting wills. The JAG corps prepare will plans but typically do not make Revocable Living Trusts. A JAG will may create a ‘testamentary trust,’ which is created after death to hold money for a child until he or she reaches adulthood. The testamentary (the word comes from ‘will and testament’) trust is created in Probate and is subject to supervision by the court until the child reaches the designated age (often 25 in JAG documents). Probate is the name for the court-supervised process by which wills are made effective after a person dies. Many people use Revocable Living Trust plans to avoid Probate because they want to avoid the expense (3-5% of the estate), delay (1-3 years) and hassle of the Probate process. JGB has a lot of material on Revocable Living Trusts at our website, www.JGBLLP.com, for those seeking more information.

SGLI

Serviceman’s Group Life Insurance (SGLI) is an employee benefit term life insurance offered to active duty servicemembers. At present, It provides up to $400,000 to a servicemember’s designated beneficiary if the servicemember dies while on active duty. It is critical that every servicemember choose his or her beneficiary carefully: we have seen the benefit paid out to ex-girlfriends, children with disabilities, or unexpected family members due to poorly thought out or missing beneficiary designations. Make sure to coordinate your SGLI (and other life insurance) beneficiary with the beneficiaries under your will or living trust.

SGLI and other similar benefits name primary beneficiaries and contingent beneficiaries. Primary Beneficiaries get the funds if a servicemember dies. Contingent beneficiaries receive the benefit if the primary beneficiary dies or refuses the benefit. If a primary or contingent beneficiary is a minor or has special needs, it is critical that the benefit be paid to a trust for the benefit of such beneficiary and not to him or her directly. In the case of minors, the child’s guardian (often a custodial parent) manages the money until the child is 18 unless alternate plans are made. In the case of a Special Needs beneficiary, matters are worsened by a potential catastrophic loss of Medicaid and SSI benefits caused by the inheritance. Check our website for more information on Special Needs Trusts; if there is a beneficiary with special needs, you need a Special Needs Trust.

If you receive SGLI benefits after the death of a loved one, be aware that you may encounter confusing options for how the sum is to be paid. JGB advises you work with a trusted financial advisor to help make the best decisions for your family.

ADSBP for Active Duty

Military pay and retired pay both end with the death of a servicemember. The Active Duty Survivor Benefit Plan (ADSBP) is the annuity for beneficiaries of servicemembers. As with SGLI, designation of beneficiary is critically important. A servicemember’s spouse and dependent children may be beneficiaries to receive an annuity after death which is increased with cost-of-living over time. ADSBP benefits are paid at 55 percent of what the retired pay would have been if the servicemember had retired on the date of death with a 100 percent disability (which is 75 percent of the highest 36

months' of base pay). ADSBP will be offset by an amount equal to total Dependency and Indemnity Compensation (DIC) received (See DIC paragraph below).

SBP for Retirees

Retired servicemembers have the option to take a reduction in retirement pay and designate a beneficiary to receive a portion of that pay after his or her death. The SBP offers beneficiary options that change with a person’s family status. For the sake of brevity, we will focus on three of the possible beneficiary categories:

Spouse and children: For survivors of servicemembers who were married and left children, benefits are paid to the spouse. The benefits pass to any eligible children (the eligibility of children is discussed below) if the spouse dies or remarries before age 55. If the Surviving Spouse remarries before age 55, eligibility is suspended; eligibility is restored if the Surviving Spouse's marriage ends by death or divorce. Remarriage after age 55 has no effect on a Surviving Spouse's eligibility to receive SBP benefits.

Children only: When there are children but no surviving spouse, the SBP is divided equally among all eligible children. Eligible children include those that are natural, adopted, stepchildren, and can include foster children. As each child ages out of eligibility (18 or 22 if enrolled in an accepted educational institution), the SBP payment is reapportioned among the remaining children. The last child ends up receiving the entire amount, until the youngest child ages out of the program.

Special Needs Children: A child who becomes incapable of self-support due to a physical or mental disability while an eligible child may receive benefits for life as long as he or she remains unmarried. This is a powerful tool to support children with special needs but will damage eligibility for Medicaid or SSI. In such a case, it is critical that such benefits be allocated to a Special Needs Trust for the benefit of the child.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation (DIC) is a benefit for survivors of servicemembers who died on active duty, veterans whose death resulted from a service-connected injury or disease, and certain fully disabled veterans. Eligible beneficiaries include spouses, children, and parents. The VA pays DIC benefits tax-free to the survivors. The SBP payment to a surviving spouse is offset (reduced) by the amount of spousal DIC compensation: The spouse receives the same payment he or she would from the SBP, but the part covered by DIC is tax free. DIC benefits payable to children do not reduce their SBP annuities.

Death Gratuity

The Death Gratuity is a one-time payment of $100,000 payable to the next of kin at the death of a service member who dies while on active duty. The next of kin is determined by law; payments would go to a spouse first, then children, then parents and other family members. The survivor receives the Death Gratuity free of federal or state taxes. While it is intended to help the family with burial and other expenses, there are no restrictions on how this payment may be used by the next of kin. Its purpose is to help the survivors in their readjustment and to aid them in meeting immediate expenses incurred.

What You Need To Know

Every family needs an estate plan to take control of who will manage their affairs and inherit their assets. A Revocable Living Trust can save time and money by avoiding the Probate process. Every servicemember should carefully name beneficiaries of SBP and SGLI to best protect their families. This newsletter is intended to provide a basic introduction to estate planning and benefits available to military families; be sure to talk to your estate planning attorney and financial advisor about what is best for your family to make sure that the title/beneficiary designation of all your other assets are also property coordinated with your will or Trust. For more information on benefits, check out the VA’s web page: http://explore.va.gov/spouses-dependents-survivors?gclid=CLv1sYKm2dICFYmFswodM_oGng.

Surviving Family Benefits

Managing the estate of a loved one requires patience and diligence at a time that the family is in no mood to deal with bureaucracy. In addition to the paperwork and confusion all grieving families endure, Military families face a host of additional paperwork and choices related to their military benefits. Our previous article, ‘Estate Planning for Military Families,’ (March 2017) explored Servicemember’s Group Life Insurance (SGLI), Survivor Benefit Plan (ADSBP/SBP), Dependency and Indemnity Compensation (DIC) and the Death Gratuity. This issue will cover burial instructions, SGLI payout options, TRICARE (military health insurance) for survivors, Basic Allowance for Housing (BAH) and Survivors & Dependents Educational Assistance (DEA).

Basic Estate Administration

Losing a loved one is a jarring experience. The pull of deadlines and process can grind against feelings of grief and confusion. Every family must first make burial arrangements and take care of the funeral. The funeral home then issues the death certificate after a week or so and the estate

administration process begins in earnest. The person who executes the estate, (an Executor, Trustee, Administrator, or Personal Representative depending on the situation), is responsible for collecting assets, paying off debts and taxes, dividing the property, and finally accounting for the funds to the court or beneficiaries (depending on the situation). The administration is finished when all assets are in the name of the beneficiaries and, in the case of Probate, the court has approved the estate.

Special Concerns for Military Families

Congress has created many benefits for servicemembers over time. The patchwork of benefits for takes skill and care to navigate. This article organizes the benefits based on the three classes of Active Duty Servicemembers, retirees and veterans.

Burial Benefits Available To All Veterans

The Veterans Administration (VA) provides burial benefits to all veterans. The VA will provide a headstone or grave marker for an unmarked grave for any veteran. Note that the benefit only applies when there is not already a tombstone or marker (for more information, see: https://www.cem.va.gov/hmm/ ). The VA may reimburse family members up to $2,000 for the funeral and burial expenses of veterans who qualify. Reimbursements are higher for service-related deaths. The eligibility requirements are too numerous to list- for more information see http://www.benefits.va.gov/compensation/claims-special-burial.asp.

Unless dishonorably discharged, veterans are eligible to be buried in National Cemeteries. While particular gravesites cannot be reserved in advance, a veteran’s eligibility can be established in advance with VA form 40-40007: https://www.va.gov/vaforms/va/pdf/VA40-10007.pdf. Since Arlington National Cemetary is administered by the Department of the Army and not the VA, this form will not work for Arlington.

Another benefit is Survivors & Dependents Educational Assistance (DEA). DEA provides educational benefits to the surviving child or spouse of qualified veterans. DEA benefits families in cases where the veteran died or was disabled while in active service, who died of a service-connected disability, who was missing in action or was a prisoner of war. For more information see: http://www.benefits.va.gov/GIBILL/DEA.asp.

Widows of Veterans may also be eligible for Survivors Pension and Aid and Attendance benefits. Such benefits have service (90 days, at least 1 was during a period of war), disability (in the case of Aid & Attendance) and financial requirements. The VA manages these pension benefits to prevent veteran’s spouses from living in poverty and to help reimburse for assisted living expenses. Talk to your attorney and financial advisor if you think these benefits may apply to you.

Additional Benefits Available To Retirees

If a retired servicemember opted to get Veteran’s Group Life Insurance (VGLI) or name a survivor annuitant under the Survivor’s Benefit Plan (SBP) the named beneficiaries should apply to receive the death benefits. VGLI benefits can be claimed through the VA and SBP from the Defense Finance and Accounting Service (DFAS). Two notes for such benefits:

  1. Keep eye out for other insurance policies. JGB has discovered small life insurance policies in many military estates. Keep an eye out for papers from companies that cater to military families such as First Command (formerly USPA/IRA), AAFMA, USAA, AFBA, etc., that might reference a life insurance policy. A ‘small’ life insurance policy is often worth $5,000.
  2. Many insurance companies will offer the option of paying you a distribution check or simply creating a checking account to hold the funds for you until you decide what to do. Such accounts are low-interest; talk to your trusted financial advisor about how to take these benefits and what to do with the funds received.

TRICARE (The word is not an acronym, though it is written as if it were) is the name for the military health insurance system. When a veteran dies, surviving families remain eligible in the same way they were before the deceased person passed away. A surviving spouse loses eligibility if he or she gets married again. TRICARE for Active Duty Servicemembers’ families is treated differently and will be discussed below.

Additional Benefits Available To Active Duty Servicemembers

Serviceman’s Group Life Insurance (SGLI) is an employee benefit term life insurance offered to active duty servicemembers. At present, it provides up to $400,000 to a servicemember’s designated beneficiary if the servicemember dies while on active duty.

The warnings previously mentioned for retiree life insurance also apply to Active Duty families: talk to your advisor about payout options and keep an eye out for small policies you might not have remembered or known about. Every year a lot of life insurance money goes to waste when no one claims it.

Military pay ends with the death of a servicemember. The Active Duty Survivor Benefit Plan (ADSBP) is the annuity for beneficiaries of servicemembers. ADSBP benefits are paid at 55 percent of what the retired pay would have been if the servicemember had retired on the date of death with a 100 percent disability (which is 75 percent of the highest 36 months of base pay). ADSBP will be offset by an amount equal to total Dependency and Indemnity Compensation (DIC) received (See DIC paragraph below).

Dependency and Indemnity Compensation (DIC) is a benefit for survivors of servicemembers who died on active duty, veterans whose death resulted from a service-connected injury or disease, and certain fully disabled veterans. Eligible beneficiaries include spouses, children, and parents. The VA pays DIC benefits tax-free to the survivors. The SBP payment to a surviving spouse is offset (reduced) by the amount of spousal DIC compensation: The spouse receives the same payment he or she would from the SBP, but the part covered by DIC is tax free. DIC benefits payable to children do not reduce their SBP annuities.

The Death Gratuity is a one-time payment of $100,000 payable to the next of kin at the death of a service member who dies while on active duty. The next of kin is determined by law; payments would go to a spouse first, then children, then parents and other family members. The survivor receives the Death Gratuity free of federal or state taxes. While it is intended to help the family with burial and other expenses, there are no restrictions on how this payment may be used by the next of kin. Its purpose is to help the survivors in their readjustment and to aid them in meeting immediate expenses.

Survivors of Active Duty Servicemembers have access to TRICARE, but the system works very differently than in the case of retirees discussed earlier. For three years after the passing, the family receives TRICARE without any change. After three years, the spouse shifts from Active Duty TRICARE to retired family member status. Cost-sharing (e.g. copays) and plan options may change as a result of the shift in status. The spouse remains eligible for TRICARE as retired family for life but ends if the spouse remarries. Children remain in Active Duty TRICARE status until reaching age 21.

Spouses and children of servicemembers who died in the line of duty while on Active Duty are entitled to a Basic Allowance for Housing (BAH) for a year (365 days) after the death of a servicemember. This Department of Defense benefit allows a spouse and authorized dependents to remain living in base housing for up to a year after the servicemember passed. Families living off-base are entitled to a year of BAH housing payments. Those that move off base within the year are paid the BAH allowance for the remainder of the year.

Conclusion

The loss of a loved one is a difficult and confusing time. Be sure to surround yourself with friends, loved ones and trusted advisors. Take time to understand your options and make the most of your service-related benefits. We at JGB stand ready to assist and work with you to administer the estate so that you can focus on your family.

Categories