Ep #61: Estate Planning

Full Episode Transcript
With Your Hosts
Micah Shilanski and Tammy Flanagan

Micah Shilanski: Welcome to another amazing episode of the Plan Your Federal Retirement Podcast. Super excited to be here today. And we’re going to talk about something that really impacts a lot of people, but it’s something we don’t care to review very often.

And as usual, I am joined with the amazing Tammy Flanagan. Tammy, thanks for being here today.

Tammy Flanagan:        Hey Micah, good to see you again today and hear from you. And I’m excited about this topic. I’m planning to learn a little bit, as well as share some of my limited knowledge on estate planning. So, you’re driving this train today, but I’ll be asking you some questions as well.

Micah Shilanski: Ooh, I’m driving. I don’t know where we’re going, but we’re going to figure it out together.

So, this is really good, because a little bit, it’s going to set the table because Tammy, you and I are going to be doing a webinar in October and we’re going to be talking about estate planning and survivor benefits. And we’re going to be going in depth in that.

And that is such a critical conversation because so often I think, and Tammy let me know your experience — but so often, I think federal employees, our clients kind of take it, “Oh well, it’s not that complicated. I just want to do a couple things.” And they’re not really looking at all of the details with this and the massive implication that this can have.

Tammy Flanagan:        Yeah, and I think too, that we get bombarded with this when we’re first hired, get all those beneficiary forms and get everything in a row. And then we kind of forget about it.

Because I always bring this up both at mid-career and pre-retirement classes, because I do think based on past experience with beneficiary forms that haven’t been updated, I do think we tend to forget that we’ve even filled those out or that they play a role in what’s going to happen down the road.

Micah Shilanski: Yeah. So, we want to jump into some things in this podcast today. Now, again, on the webinar, we’re going to go in more in depth, so make sure you jump on our website, planyourfederalretirement.com.

You can sign up for it there. We’re going to go more in depth with Tammy and I and give you some great examples and walk through.

Today, we’re really going to focus on the beneficiary side, a little bit on the survivor side. And Tammy, what I’d love to do is go through and talk about what are some of the things, the different forms that are out there.

But I also want to get into mistakes; mistakes that you and I see with these things that are easily fixable, as long as we are above ground. This is the joke that I say; if we’re above ground, we can fix a whole lot of things.

But if you pass away, there’s no Ouija board coming out. We’re not able to predict what you thought you wanted to have happen. And what I can often see, and what I will say is the number one mistake I see made time and time again in the planning circle, is that beneficiaries are not accurate.

It is now close to 75% of the people that come into my office, new clients, that have incorrect beneficiaries on one or more assets. And this adds up to be a lot of dollars.

Tammy Flanagan:        Yeah, it sure can. And I think that we don’t really understand the way that these things get paid out or what if somebody has passed away that’s a beneficiary. When we need to update these, if there’s a marriage, a divorce even, birth of a child, those are all occasions when your wishes might change, the needs of your family could change.

And it’s really important because you can really cause some hard feelings, that’s the very least of the problems. But the worst problem is your money could be going someplace where you never had intended it to go.

Micah Shilanski: Yeah, Tammy, I was talking with an estate planning attorney that we’re interviewing to use with our clients yesterday. And one of the things that I told him … he was a little taken back when I said this.

I said, “The problem with the estate planning documents is it’s a coldhearted set of documents. It’s written by an attorney, it’s written in legalese for a certain purpose. And that’s the way it needs to be written, but it’s a cold document.”

And when we die, beneficiaries good or bad (I’m just telling you from my side of the table, this is what happens), we equate how much were we loved to how much did we get. And if all of a sudden, my sister got 60% and I got 40, I was loved less. And that’s just emotionally how we feel.

So, these beneficiary designations are really important to make sure we’re getting what your wishes are across the board. And again, we’re going to talk about this more in the webinar, we don’t got time to do it today.

But there’s also some steps you have to put in place. And I called it an, “I love you letter,” that you got to put in place that explains why you were making these decisions, because it’s not just about the financial implications, it’s also about that family unity that’s going to happen afterwards.

And we have all seen and heard about families that got completely divided and separated because of the way an estate was divided and set up. And man, that is really sad considering it’s all preventable.

Tammy Flanagan:        And some of it was unintentional, because they didn’t keep things up to date or forgot to change something at the time that that family had changed, the family dynamic had changed.

Micah Shilanski: So, we got some of those mistakes that we’re going to talk about at the end of the podcast.

But before we jump into that Tammy, let’s talk a little bit about some highlights of estate planning, like the documents, et cetera. Then we’re going to dive onto the beneficiary side, and then we’ll get into the federal side as well. What are documents that we need to be outlining and some pros and cons. Does that sound good?

Tammy Flanagan:        That sounds perfect. And I know there’s some documents that everybody, I guess, 18 and older should have. Even if you don’t have a $20 million estate, because some people think of estate planning as only for the wealthy.

But I think everybody needs to let their wishes be known legally so that that can be followed, because the whole point is when you’re incapacitated or when you’re not here anymore, you want things to happen the way you would’ve wanted it if you were here.

Micah Shilanski: Yes. So, consistency is really key. So, Tammy, those three documents that we had talked about, is the minimum on estate planning, at least for my clients, what I tell everybody 18 and older; number one, an advanced healthcare directive. Sometime this is called a living will, this can differ a little bit by states.

I guess my compliance guy would also like me to tell you that I’m not an attorney. So, this isn’t legal advice. So, throw that disclosure in here. It’s only from a financial planning and a benefits point of view that we’re speaking from.

But I really want to see that advanced healthcare directive. And this is referring to your end-of-life decisions.

God forbid, but we use the example, in Alaska, you hit the moose on the way home, you’re incapacitated, what are your end-of-life decisions A? And B, who has the authority to make these decisions?

Tammy, a common misconception as I see, is, “Micah, well, I’m married so my wife or my spouse will make these decisions.” No, they don’t have a legal right to make those decisions unless you’ve gone out of your way, filled this document and granted them these powers.

Tammy Flanagan:        And I think the other thing we assume is we can make those decisions for our children, but now, under HIPAA laws, you can’t really make decisions for your adult children anymore. You don’t even have access to see them unless there is permission given.

So, these documents can be really important to make sure that you do have the right to intervene if necessary.

Micah Shilanski: Tammy, it ended up varying very well. But a funny story about that one, is my niece, when she turned 18 for her birthday, we got her a stack of these forms. We thought it was hilarious. She didn’t think it was so funny, but we made her fill out these forms, and she put us on there as the power of attorney, which we’ll talk about in a second, as well as the advanced healthcare directive.

Well, she’s born in June, two months later in August, now she’s 18, she walks into the ER from some pain. They’re like, “Yeah, it’s really not nothing, you need to leave.” So, she leaves and she collapses in the ER, she goes into ICU, all of these things are happening. We go to the hospital, they stop us and says, “She’s an adult. You don’t get to come in and see her.”

And so, right there, I opened it on my phone and I said, “I got the healthcare directive right here.” And the nurse was like, “Well, we’re not going to accept that.” I was like, “This is state law, you must accept this document. If you choose not to, then it’s going to be escalated. It’s your choice.”

I was like, “I don’t want to make it difficult for you. But my niece is in a coma. I’ve done the documents in place.” And then she let us in. We were able to make her decisions. She was there for about a week and now, she’s totally fine. But that would’ve been a-

Tammy Flanagan:        But that’s the thing. You have to know your rights, because if you didn’t know that that presided over that hospital, you would’ve just said, “Oh, well, I thought I had the document, but apparently it’s not good enough.”

So, that’s important to figure that out or to have that confidence, because a lot of people would’ve just left and said, “Oh, well.”

Micah Shilanski: And another nugget that I want to pull out, that we’ve used this a lot with our clients; whenever our clients do these documents, we want a copy of them, because we store them electronically, securely for our clients.

And it has been multiple times we have gotten calls from clients that are traveling. One person is in the hospital, the spouse calls and says, “Oh my gosh, all my documents are in Alaska, how am I supposed to do this?” Because if I didn’t have the document right then, I couldn’t have got access, but I had it on my phone.

So, you got to have these in a place that not only you can access them but your agents, the people that you’ve appointed on there, they got to know where the original are, and they got to be able to access electronic copy for that type of an event.

We’ve faxed these, we’ve emailed these, we’ve sent these out to clients on multiple occasions when they’ve needed it. So, you got to have that electronic access.

Tammy Flanagan:        That’s a good, good point. Good tip.

Micah Shilanski: So, that’s our first document. The second document is the durable power of attorney.

Now, this is by far the most powerful document you will ever sign, because this gives the authority of someone else to make almost any financial decision that you can make, and this appoints somebody else to make that.

So, you got to be really careful. As you can imagine, this has been abused in the past. So, you got to be really careful on who you’ll appoint in here. And there’s several ways to do it, we’ll talk more in the webinar about it.

But the highlight of this document is really saying if you’re unable to make your financial decisions, who can make them? Again, it goes to, “Micah, I’m married, my spouse will make them.”

Well, what right do they have? Your spouse can’t call your HR and get your benefits. They can’t access your TSP. They’re not legally allowed to file your tax return without you. They can’t file for your social security benefit.

There’s a lot of stuff they just can’t do legally because it’s individual benefits. So, the document that allows them to do this is this durable power of attorney.

Tammy Flanagan:        And if I’m not mistaken and I know for the webinar, we’re going to talk about this as well, but doesn’t OPM require a different document, a representative payee to be appointed?

Micah Shilanski: They do.

Tammy Flanagan:        So, it’s a little different than just having that power of attorney.

Micah Shilanski: You bring up such a great point. We’re going to get on my soapbox on this one on the webinar. And I’m not an attorney, so I’m not trying to step over on those bounds. But we have these documents that are set down and banks and other organizations are quite notorious for not choosing to accept those documents and they want their own document signed.

Tammy Flanagan:        Their own, that’s right.

Micah Shilanski: So, there’s a couple of banks, one of them has a stage coach in their logo. You can figure out which one that one is, that when clients have that bank account, I really encourage them to go get that bank’s power of attorney form and get it signed, because they have just been a pain in our butts dealing with in this situation.

And while in my opinion, in the attorneys I work with opinion, everyone should be accepting this power of attorney — sometimes they don’t. And so, these are things that you need to work on.

With OPM, we haven’t had to run into that issue just yet, where we haven’t been able to get them to accept the power of attorney. But I’m sure that case is out there.

Tammy Flanagan:        Yeah, because I know somebody had asked about that and I inquired with OPM and they directed me to a form that would be used in lieu of that power of attorney

 So, all these things come into play and it’s hard to know until the time comes because you’re not in the position yet. So, just nowhere to look for them, nowhere to find these documents.

Micah Shilanski: And then the third one is the will, and the will is really, really important because the first two documents are while you’re alive, but you’re incapacitated. The third one is you’ve passed away. What do you want to see take place?

Now, even if you believe the order of operations on the TSP’s website or on other IRAs, it says, “Well, if I die, everything’s going to my spouse. Therefore, I don’t need a will.” I’m going to push on you. And I’m going to say, yes, everyone needs to have a will.

Even if it’s a simple, “I love you” will; “Sweetie if I die, you get everything.” But we need to have this in place. Because if you don’t, if you create ambiguity in your estate planning, all of a sudden, it becomes a lot more complicated for your loved ones to get the money, to get access to things and to use it.

So, there’s a theoretical world which says, “Well, I shouldn’t really need this if I have beneficiary set up correctly,” theoretically, that’s correct. Then we have reality that says, “That’s not always the case and we got to have this in place.”

Tammy Flanagan:        Yeah, and the other thing I just ran into with a client was her husband had passed away and she was having trouble getting everything because she thought one death certificate would take care of all the federal benefits.

Oh no, you need one for every benefit. And then due to whatever supply chain issue was going on with death certificates, it took her a while to order the copies, the number of copies that she needed.

So, everyone I’ve ever talked to who has gone through this says, “If you think you need 10, get 20.” Because everything needs an original certified copy.

Micah Shilanski: Yeah, 8 to 12 is normally what we recommend clients to get, depending if they have a lot of different accounts, we might recommend more. But yeah, you need a decent amount.

Now, could potentially you get by with one? Sure. But what’s going to happen? Let’s walk through this scenario.

Okay well, OPM needs one for the pension. So, you send it to them. They’re supposed to send you that death certificate back, but how long is that going to take? Then you send it to the next company. Now, they have it for four months, then it comes back to you. Then you send it to the next one.

You could be dealing with trying to get benefits for a year, 18 months. That’s the reason you need these multiple copies so you can have multiple of these institutions working at once.

And it’s easier to say, well, they should share this information. Well, that’s not this podcast. This isn’t about what they should do, this is about what they do-do and what we need to be looking at.

Tammy Flanagan:        Exactly, yep. Yeah, it causes problems. We see it all the time.

Micah Shilanski: So, those are the three basic documents. The advanced healthcare directive, the durable power of attorney, and the will.

And then there’s this other thing, which is an order of operations. And again, not pointing everything to the webinar, but we’ll get in this a little bit more. And we’re going to talk about when you pass away, what are the order of the operations that things passed? And first is by title, then by beneficiary, then by probate.

Well, beneficiary is a huge one. And this is one that I see time and time again, Tammy, people have the wrong people named as the beneficiary on their documents.

And in fact, we had a new client hire us a few years ago, she was down in Washington. She went out and had an estate planning attorney do all of their estate planning, which was fantastic.

Then she comes to me and I say, “Hey, I want to review all this estate planning.” And she was a little put off. She’s like, “Hey, I’ve already paid this estate planner to do all this work, I’m not sending it to you.”

I was like, “Hey, this is our requirement. And if they did all this stuff and it’s fantastic, it’ll be a two-minute conversation. We’ll review it. We’ll put a check mark by it and we’ll move on. But if it’s not, I got to know.”

So, reluctantly, she sent us the documents. Tammy, when we went through it, the estate planning attorney was disinheriting an entire side of the family, which wasn’t her intent.

And basically, what they said is, “Well, when I die, I want my money to go to my spouse.” Well, because it was a blended family. Or, “If he predeceased me, I wanted to go to my side of the family tree, and the same as vice versa.”

So, that’s the way that the attorney had drafted their estate planning documents. Okay, well, let’s walk through this, what happens.

Bob and Sue; if Sue passes away, everything went to Bob. That’s what she wanted. But now, Bob, has everything in his name and now, Bob passes away, what does his will say? Well, it says give everything to Sue, but Sue’s deceased. So, give everything to his kids. So, now all of Sue’s-

Tammy Flanagan:        Right to her money.

Micah Shilanski: Yes. All of Sue’s money went to Bob’s kids. Now, I see this time and time and time again. Now, I’m sure the estate planning attorney did exactly what the client had asked for, but it wasn’t what the client wanted. So, we had to read-

Tammy Flanagan:        But without thinking of what happens in reality.

Micah Shilanski: And that’s one of the things that we love to do, is we put together a little flow chart to walk clients through what actually happens with the money. Where actually does it go in these little different buckets in these scenarios? And let’s make sure you understand this, because again, I can’t fix this postmortem. This is really, really challenging. It is set in stone at that time.

Tammy Flanagan:        Somebody one time worked at OPM, I believe, it was at a conference and they said, “The most litigated form in all of the federal forms is the FEGLI Beneficiary Designation.”

Micah Shilanski: Ooh, I bet. I bet, yeah.

Tammy Flanagan:        So, that’s why they’re so picky about making sure that there’s no erasers, there’s no mistakes. If you made a mistake, start over again. And now, these forms are all fillable. So, there’s no reason why you can’t type all the information in, print it, have it witnessed.

Now, you can even DocuSign them. So, now you can do electronic signatures. So, it’s easier than ever before. And it’s so much easier now to make them legible, make them clear, and really have a chance to review them.

Micah Shilanski: Well, Tammy, let’s talk about that right now, then. And so, on the federal side, what are the beneficiary forms? So, we got like four. We have four on the federal and then plus other ones. But what are those?

Tammy Flanagan:        Yeah. The four for federal employees, now there’s only three if you’re retired, but the four for employees include the TSP. Well, let’s get to that later.

The last paycheck and unused annual leave, because that’s the one that’s strictly for employees. That’s the standard form 1152, if you’re taking note of the numbers.

But that form is going to tell your payroll office who gets the lumpsum payout of your annual leave, who gets your final paycheck, because all of that stops as soon as the agency’s notified of your death, everything’s put on hold until somebody makes a valid claim for those benefits.

So, that can be one of the most important ones for an employee because your mortgage got to still be paid even though you’re not here. So, you don’t want your spouse worrying about where that money’s going to come from.

Now, the other three, they’re good for both employees and they should be maintained in retirement for almost everybody. And that would be TSP. And we’ve had a discussion about the TSP because of the new record keeping system. About a quarter of a million of the TSP forms that had been on file are not transitioned over to the new record keeping system.

They made a decision that some of these didn’t look like they were legible, they might not have been ones that would upload properly. So, they just didn’t do it. They left them in the cardboard folder in the file cabinet.

So, if you go to your TSP account and you notice that there is no beneficiary listed, you might want to file a new one. Even though that old one is probably still in a file cabinet, just put an electronic one on the site. You now need a social security number, which I don’t remember needing that before when you named a beneficiary. But now, they’re asking for the social of the person you’re naming, which I thought that was kind of unique.

Although I did look to see, other accounts are asking for that now too. So, I’m not sure if that’s just a change in protocol. I don’t think it’s a change in the law.

Micah Shilanski: It’s not a change in the law because there’s several that still do not. I know a lot of life insurance companies don’t, Schwab doesn’t, Fidelity I don’t think does. Wells Fargo, they’ve been requiring socials for a while for beneficiaries. So, I think it’s a company preference.

Tammy Flanagan:        Some people don’t want to do that. I don’t want to call somebody up and say, “Hey, I’ve got a million dollars in my thrift, can I have your social because I’m going to make you the beneficiary?”

So, they want it to be a surprise, I suppose. But I guess they just feel funny asking for that. But if you don’t have their social, you’re going to need it, if you update that beneficiary form.

And these are now online, so there’s no TSP-3 that you can print out and ink pen it. These are definitely online. Your beneficiary witnesses are going to be DocuSign. They’re all electronic.

So, the TSP has really pushed this into the new century. So, we are up to date there, but there are some issues with this transition.

Micah Shilanski: And I’m going to say, not to be too much stick in the mud about the prior century planning, but I think a lot of federal employees should push back. I think the TSP, should go back to a TSP form to help being filled out, because we have been able to help tons of clients with this and with the online access. This is creating another barrier for federal employees to put it in.

So, the answer is, in my opinion, they need to have both systems in place. And that’s what best practice because we see so many other companies that do that same thing. I want to give you two options. If you want to do electronic, fantastic. Let’s do it.

But we also got to have that paper option to make sure it gets in there. And what you said Tammy, I want to pull it out; a quarter of a million TSP participant information beneficiaries did not get moved into the system. Do you know which 250,000 people those were by the way?

Tammy Flanagan:        I don’t know. I can’t say because they could be uniform division, they could be retirees, I don’t know.

Micah Shilanski: That’s the point, since you don’t know-

Tammy Flanagan:        I think though that if you filed yours, yeah. If you didn’t fill it out electronically initially, because you could have always filled them in. But if you used an ink pen or if you used an ink pen losing its ink, it’s probably a good chance yours didn’t get uploaded. So, it’s worth checking.

Micah Shilanski: Or did you fax it in-

Tammy Flanagan:        You should set up that new account.

Micah Shilanski: And the fax machine was illegible on the other side, right?

Tammy Flanagan:        That could happen as well.

Micah Shilanski: Yeah. So, one positive thing I’m going to say with the TSP, I just saw the new TSP statement. I was seeing the other ones what they were going to be, but I saw a new one from a client the other day. And it had, I think it was back on page three — I think it had on there that beneficiary listed, listed primary (I’m not seeing contingence listed).

But at least, that’s going to be an indication that says, hey, so if you’re looking at your TSP quarterly statement and it does not have a beneficiary named on there, guess what? They probably don’t have it in their system and you need to go update that.

Tammy Flanagan:        Right. Now, there was a time I know that the TSP was getting pushback for publishing the beneficiary’s name on those statements. Because if your spouse opens the mail and they notice they’re not the beneficiary, there could be some family feuds going on.

Micah Shilanski: And maybe there should be, that’s a different discussion on there, because there is some spousal rights to those benefits, but yeah.

Tammy Flanagan:        Yeah, but you can name whoever you want, and apparently some people didn’t name their spouse.

Micah Shilanski: I got a funny story about that. That’s a good beer conversation about when I discovered that in a client meeting, that it was the wrong person.

Tammy Flanagan:        Oh, in front of the spouse.

Micah Shilanski: Oh, in front of the spouse. Oh, yeah. It was a very awkward moment for all of us.

Tammy Flanagan:        Not a pleasant conversation.

Micah Shilanski: So, Tammy, so what I heard is-

Tammy Flanagan:        Yeah. So, that’s two.

Micah Shilanski: We had the two.

Tammy Flanagan:        We had two of them.

Micah Shilanski: We had the last paycheck on the TSP.

Voiceover:  Whose survival is dependent on you having your affairs in order? A wife, a husband, a child, or an adult parent? So many of us weave the fabric of a complicated life, and others depend on us to make sure that we have everything in order.

But as we work with hundreds of federal employees across the country, it becomes more and more apparent that so many federal employees only have a basic understanding of their survivor benefits, and inadvertently, end up disinheriting many of their spouse’s because they make a simple mistake, like check marking the wrong box, not understanding how health insurance ties into your pension, or worst of all, thinking that they had time to get all of this in order.

That’s why we will be hosting an incredible power session on survivor benefits and estate planning, and the choices that federal employees need to make today to make sure that their heirs have a better tomorrow.

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And if you know other federal employees who desperately need this information, please share this podcast, share the website, share the invitation for them to join the power session.

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Go online right now to planyourfederalretirement.com and become part of the conversation experience as we radically change the lives of federal employees across the country by better understanding their benefits and taking care of the ones that they love.

Tammy Flanagan:        Now, let’s get to life insurance, FEGLI. So, FEGLI has its own beneficiaries standard form 2823, and this one, the first person in line to get that money even before the beneficiary, even before the standard order of precedence is the person you assigned the life insurance to.

So, under FEGLI we can do assignment. And I never really understood the purpose of that until I met a person whose ex-husband passed away. And in the divorce decree, he was told that he needed to maintain his FEGLI life insurance and always keep his ex-wife as the beneficiary.

Well, he changed it. Nobody went and looked at the court order to see why he couldn’t change it. So, you can change your beneficiary anytime you want, doesn’t matter what’s in the court order.

But if the court order assigned the life insurance to your former spouse, so now they own it, now it can’t be changed. Now, you’re not legally able to go in there and change it. So, that hadn’t happened. So, she found out that he had canceled the life insurance, too bad.

Micah Shilanski: So, what’s your recourse with that? You go to go court, you sue them, but the estate has nothing and you have all this time wasted and money and you’re not going to get anything.

Tammy Flanagan:        Yeah, because this was a guy who was in his eighties. So, probably all that was left was maybe five grand. So, it wasn’t like we’re talking 175,000. It was a small amount, but she figured, “Hey, after all that time, at least there was something left.” And she found out that wasn’t even there.

Micah Shilanski: Tammy, that’s something on the planning side with life insurance and you can do the assignment like on a divorce degree, et cetera. But whenever you’re getting life insurance, I’m generally a fan with spouses of what’s called cross ownership. My wife owns mine and I own hers.

And there’s still some good estate tax reasons as to why I would do that. But the other reason I like to do that, is I really like to highlight who is this for? My life insurance is not for me. So, why am I the owner of it? My wife needs to be responsible to make sure that sucker gets paid, because if I die, it affects her, same thing with that.

So, I’m a huge fan of cross ownership in life insurance. It really helps identify whose responsibility to make sure it keeps getting paid. And especially, in a divorce case, if it was assigned, and you can do this with private policies as well, you can change that ownership over, now that ex-spouse would get all communication on that policy and could also have the option to pay that policy, if the insured quit paying it, to make sure that policy’s in place.

Tammy Flanagan:        Yeah, and I guess that’s the weird thing with FEGLI, because you don’t have a policy here. You just have a beneficiary form if you saved it. So, you just have to take for granted, it’s still there and what the value is, and so forth.

But in a way, FEGLI can be good because the basic FEGLI … option B, we could talk about another time, but the basic FEGLI does have some valuable benefits that I never recommend people drop that, because number one, it has a living benefit. So, and you can become your own beneficiary if you have a horrible life expectancy prognosis, nine months or less, you can become your own beneficiary.

It also has the post-retirement benefit that maintains 25% of it free of charge. So, we call that the burial benefit, because usually, what’s left is enough for that final expense. And then it floats with your salary. So, every time you get a pay increase, the amount of that basic life goes up and you don’t have to pass a physical every time that happens. So, even if you’re no longer insurable, as long as you remain a federal employee, that basic coverage increases.

But for most employees, especially younger employees, ones who are starting a family or getting married, basic coverage isn’t enough life insurance. You have to do an analysis to figure out how much insurance you need.

And when it gets to that option B, then it might be worth shopping the market, because that one doesn’t get a government contribution, that one’s priced based on everybody in the government, those in good health and poor health and regardless of how they die. So, that one can be a little pricey if you’re otherwise insurable. But I wouldn’t drop it.

Micah Shilanski: No, I’m a huge fan of keeping the basic even into retirement, especially if you’ve already paid for like 30 years, you’re retiring at 62. We can get into details, but you only got to pay for it for another three years, and then it doesn’t cost you anything after that. So, there’s no reason to drop that as we’re getting close.

On that option B, I generally say about the age of 35, Tammy, that’s my rule of thumb walking around number. Once you hit about 35, you can probably go get private insurance for the same cost, if not less than option B coverage.

Tammy Flanagan:        Less. Yeah, I know when I left the government, which was over 30 years ago, I was in my late twenties and I bought a private policy once I left, because I had young children and I wanted to make sure if something happened to me, I was insured.

And I was shocked at how cheap life insurance was because I was paying way more for FEGLI that I carried as a federal employee than what this policy, that was good for the next 20 years, which was adequate, because my youngest child was just born when I left. So, it covered him until he got of age where he could support himself. So, it served its purpose for a lot less money. So, that’s FEGLI.

And then the last one, and this is one that gets confused a lot, because nobody knows what it’s for; it’s the one for your retirement — FERS or CSRS. So, the FERS form, beneficiary form is a 3102. It’s a standard form 3102. And the CSRS one, if you’re under the old retirement system, is a standard form 2808.

And I get people confused about that because they say, “Well, I put my beneficiary down as my spouse, so do I still need to elect the survivor benefit?” Well, the beneficiary has nothing to do with the survivor benefit.

Micah Shilanski: Which sounds funny, doesn’t it? I was like, how does the beneficiary not something to do with the survivor benefit?

Tammy Flanagan:        Well, the survivor benefit is a lifetime annuity payment, and beneficiary forms designate who gets a lumpsum benefit, not a recurring payment. So, what is the lumpsum benefit of your retirement?

Well, there’s two. One is the money you’ve contributed throughout your career. Whether it’s been 0.8% under FERS or 7% under CSRS. And when would your spouse get that?

Well, it could be whenever you die of something happening at work, like after 9/11. The employees who lost their lives at the Pentagon, they died while they were at their desk, unfortunately. And so, those were workers’ compensation claims.

So, the spouses, the families, the survivors of those employees received a more generous death benefit from Department of Labor. So, the money those employees had paid into FERS or CSRS was really useless.

The employees never got to retire, the families are getting compensation. Can’t get both. So, the money left in the retirement fund was returned and everybody says, “Well, to who? To the government?” No, it’s returned to the beneficiary.

The sad thing was some of those cases had beneficiary designations that had never been updated since the person was hired. So, some of it went to a mother in a nursing home. Some of it went to a former spouse where the surviving spouse had three children.

So, it’s so important. After that situation, I heard about those cases. I said boy, “It’s so important to remind people on a regular basis to check those beneficiary forms, update them if you’re not sure who you named. And obviously, if there’s a life event, one of the first things you want to do.”

Micah Shilanski: And Tammy on a frequent, you need to review those. So, in my world to dealing with clients, it’s every two years.

Every two years we run a beneficiary report for every single one of our clients. And we say, “Hey, great, these are all the assets that we see. This is your pension …” social security doesn’t really have the same survivor beneficiary amount that’s going to be there.

We list all of their assets. We list who their primary beneficiary is, their contingent beneficiary and the dollar amount. And this is really important. Because you could say, “Hey, I want all three of my kids to get an equal dollar amount, but they’re only looking at things one at a time.”

Well, you add up all your assets, you got $1.5 million. You’re like, “Hey, do you really want Johnny to get $500,000 when he’s 19?” “No, I don’t want him to get 500 grand.” Okay, well that’s what you said, get a third each. And that’s how math works.

Tammy Flanagan:        Yeah. What’s going to happen.

Micah Shilanski: Exactly. So, I like to look at beneficiaries in the percents, but then I like to total to the beneficiaries, the total dollar amount. And this gets into that question, who do I name as a beneficiary?

And in default, we say our spouse and our kids, but then we need to say, okay, what impact is that going to make? And is that going to make a positive or negative impact? With your spouse, probably a positive impact. You’re married, you grew up together, all these other things, they need that money.

But on your kids, especially the younger the kids are, you really going to ask, is this money going to leave a positive impact if I cut them a check for a lumpsum. There is a reason a majority of lottery winners go bankrupt. And it’s not because they didn’t win enough money, it’s because they’ve never had an experience with a lump sum of money and now, they don’t know how to use that.

And you got to look at this the same way and say, does this help or does this hurt? And if you think it hurts, well then great news, there’s many things you can do to put in place to give guidance from the grave to really help your beneficiaries and not hurt them.

Tammy Flanagan:        Yeah. You hear that also with sports stars who get fame very young in life or movie stars who do the same, why did they end up in poverty? Well, because they didn’t know how to manage that windfall of money.

And that’s the same situation, if a young child inherits half of your wealth or all of your wealth in some cases. So, that’s a tough one too, because when is that age when you feel that they’re ready, because they’re always your kids and they never, never become responsible or they’re very responsible and they’re only 17, but that can all change if you leave them a half a million dollars.

So, that’s a tough call. You really have to think that one through because we’ve been going through that as well, because our kids are grown. And we’ve made changes to the will now that they are grown and responsible and showing that they can handle things as adults. And that wasn’t always at age 21.

Micah Shilanski: No, or 26 or whatever arbitrary age; kids are unique. We all know this growing up and raising the kids. They’re all different. We got to look at them.

Well, Tammy, on the beneficiary side, so those were the four. You did a fantastic job talking about those four beneficiaries on the federal side. But let’s keep in mind that almost every … I can’t think of an exception, so I’m going to say every financial asset out there, you can leave some type of beneficiary.

Bank accounts, now sometimes they call them a POD (Payable on Death) or a TOD (Transferable on Death). But that’s a beneficiary designation on your bank accounts. Retirement accounts, IRAs, Roth accounts, investment accounts, brokerage accounts, your Bitcoin — any financial asset, you can leave a beneficiary designation. So, it’s really important to do that.

Real estate, there’s now three states, I believe that allow you to leave a beneficiary on your deed. So, on the title of your house, you can actually put a beneficiary on there.

Well, why would I want to do that? Well, if my wife and I pass away, I don’t want my house to go to probate. I want it to go directly to my kids or directly to whomever. Before real assets, always had to go through probate unless you had a trust, and now there’s a way around that.

So, again, it’s a great tool depending on what state you live in and more states are now adopting these. So, making a list of all of your assets you have, making a list of all those beneficiaries is something that’s really important you got to do.

Tammy Flanagan:        And you just mentioned something when you said about, depending on what state you live on these rules. Well, a lot of our retirees (us included), when my husband retired, we move, and sometimes we move out of state. So, we had our wills and trust done before we moved from Virginia.

So, we come down to Florida thinking, “Oh, everything’s in place. We don’t have to worry.” Then it dawned on us saying, “We’re in a different state. There’s different tax laws, there’s different estate planning laws.” So, we marched back to the Affordable Attorney down the road and very good attorney, but I love his name.

Micah Shilanski: His name is the Affordable Attorney. Oh, that’s funny, that’s funny.

Tammy Flanagan:        Not really that affordable, but he got us in the door. And so, we had our wills reviewed and redone, so they comply with Florida law, because things are a little different here.

Micah Shilanski: Yeah, that’s really important to do. And one of the things that we can talk about a little bit on the webinar as well is we’re going to get into some trust planning, and why are trusts appropriate?

Sometimes there’s a myth out there that you only need trust if you’re this ultra-wealthy for this massive estate planning, Tammy, as you mentioned for estate tax, that’s not the case.

Most of my clients that want a trust, they want to trust for one or two reasons; for privacy, because probate is a public process. Everybody can see what’s going on. So, they like it for privacy. And then number two, I know the reason that I created a trust was for control from the grave.

I love my kids, they’re minors. Gabe’s coming on 14, Lana’s 11. When they’re 18, I don’t want them to get a lumpsum of money. I want to control from the grave. And I’m going to say this a little more positively — instead of just control, I want parent from the grave.

I have seen the effects that money can have implemented incorrectly and I’ve seen the effects money can have implemented correctly. And I don’t want to be on the latter half of that.

So, we have rules inside of our trust on how our beneficiaries can access money, but they’re not trust fund babies. They have to earn money. They have to do certain things.

And I wish the trust to act like the parent because I’m not there. What are things that I would have wanted to help them with? And when we phrase it that way, our minds start shifting just a little bit, because I don’t have people coming in that says, “Micah, once my kid’s 18 and I’m alive, I’m going to give them a million dollars.”

No one says that, yet we say that in our estate document, why? Why would we do that? So, maybe we act like we were still alive, what are things we would’ve wanted to help them with and steer them in that direction? Just a thought.

Tammy Flanagan:        Yeah, we did the same thing because of that very reason. And the other thing we did, and I’m not sure to tell you the truth if this was in our will or in the trust document. But we said things like, my husband has a Corvette, which he loves it, I love it. But I don’t know that my kids want it.

And so, we said in the documents, if one of them wants it, fine, but if neither one of them wants it, then we’ll put it up for auction and split the proceeds. Or if one wants it, they can buy the other brother out.

So, you have to put instructions like that. So, the kids aren’t saying like, “Well, no dad said I could have it.” No, it’s written in there. This is what happens to it. Or coin collections or other things that don’t have a beneficiary form attached to them.

Micah Shilanski: Those things are fantastic. So, one of the things that we use — and forgive us, we’re going to go a little bit longer on this podcast. Hopefully, that’s okay with our listeners. One of the things that they talk about is describing things with reasonable certainty.

So, “Hey Tammy, you remember that thing we got that one time we were on the trip? That goes to Sue.” Okay, no one knows what I’m talking about. So, we have to do a reasonable certainty. “Okay, the 1965 Corvette goes to Micah.” If my dad’s listening, that was what I would like.

So, it’s really clear what that asset is. So, the Corvette, so those things are really easy to do on what calls a personal articles policy that you can write. My preference, and again, I’m not an attorney, but I’m just going to say my drafting preference; if you’re going to do a trust, make the trust the cornerstone of your estate plan. And there’s some really great reasons to do this.

One of the things I do not like to see is when we’re splitting up responsibilities between the will and the trust, because now, I just made this more complex. So, if we’re going to go to do a trust … in the support team, I’m sure this is probably the way your attorney did it; if you’re going to do a trust, your will is basically what’s called a poor over will, that says, hey-

Tammy Flanagan:        Yes, we have that.

Micah Shilanski: Perfect, yes. Basically, what it says is, “Hey, if I ever got to put something in my trust, stick it in my trust.” And it takes 11 pages to say that, but that’s what it says. And then the trust handles everything.

Now, I’m a huge fan of this for simplicity reasons, because now, if you’ve created a trust, now, when it goes to updating beneficiary designations, I could look at a client and they can have 18 different beneficiaries’ forms that they need to update.

Think about it, you get a husband and wife, you can easily have seven, eight accounts just there, great times two, that’s 14, plus the beneficiary, plus the federal accounts. Really easy to add these up.

If we have a trust in place and it’s structured correctly, then our beneficiary designations are really simple. It’s either everything to the spouse and the contingents to the trust, or maybe just everything to the trust. There’s pros and cons with how to structure that, you really got to understand tax law. You really have to understand the tax law because the attorney does not.

Tammy Flanagan:        Yeah, they’ll do whatever you ask them to do.

Micah Shilanski: Yes, that’s the thing. I had a great podcast with a great attorney, Rod Zeeb. We went through and talked about this. He’s a very high-end estate planning attorney, but that was his comment that he made, is most attorneys are order form takers. They don’t know individual income taxes.

So, you really got to make sure you’re working with somebody that’s going to bridge that gap. Sorry, I’m getting all preachy on here. I get excited about this stuff.

Tammy Flanagan:        Well, and you bring up a good point because you’re a financial advisor. So, your clients come to you for financial advice. So, that’s why you have these people in place to help your clients where you can have some input as they’re working with these other professionals.

And I didn’t understand that when we started working with a planner many years ago, we went out and found our own attorney because so, so and so said we use this person. So, we went to that person.

And our advisor’s like, “Well, if you’d asked me, we work with somebody.” And I never thought of that, but that would’ve been a good thing because then, he could have been involved in how we set this up. Because he has a tax background and financial planning background, that would’ve really helped.

But we don’t know these things. We’re young and dumb when we start doing it. And that’s why we’re doing podcasts like this to help people who might make the same mistake that some of us have made.

Micah Shilanski: Oh, constant learning. This podcast is all about action items. So, first action item, I want to say, high priority, go sign up for that webinar. Yes, I know I’m biased. Alright, there it is. I totally agree.

But we’re really going to be focused on delivering some massive value to you in that period in time, and really walking away with some great actionable steps from that webinar of what are things that you need to do that you’re probably not thinking about. So, that’s my soft one.

So, another action items of things to do, make a list of all of your accounts, every single one, so this is like a net worth statement. Make a list of every single individual account you have. Don’t combine them. And then go through and say, “Great, when is the last time I updated my primary and contingent beneficiary on that?”

Now, that’s not when do you remember you did it — pull out the form, the copy of the form or the confirmation you have.

Tammy Flanagan:        Make sure you have the forms. Because there’s so many people didn’t save their copies of the forms or lost them through 15 different moves that they’ve made.

So, sometimes, and this is kind of piggyback on that as another to-do list item, file new ones, especially if you didn’t file them for the last 25 or 30 years. Because even though that person didn’t change, there’s a chance that that beneficiary form, if you filed it with your agency, it could have gone in somebody else’s file.

We used to find that all the time; records management had forms after forms to file, John Jones went in John Johnson’s file, it happens so often. So, we have problems with the electronic filing. There were big problems back with the paper documents as well, whether they faded or misfiled.

So, file a new one. It doesn’t hurt to update those. The newest one, the latest one on file is going to take precedence.

Micah Shilanski: And Tammy, I’m going to echo that one, one more time. Anytime we update client’s estate planning documents, especially with any type of massive changes, we redo every single beneficiary. I get a stake in the ground when I’ve done those. You could say it’s extra work, sure. But now, I know it’s done to make sure it’s done correctly.

Tammy Flanagan:        Yeah. In some agencies, we’ll put that on the to-do list for their employees who are retiring, file beneficiary forms. And they’re like, “Well, I already filed these.” I’m like, “No, listen to them. That’s a good advice to go ahead and file a new set.”

Micah Shilanski: Yeah. Awesome. Well, again, this podcast … yeah, yeah.

Tammy Flanagan:        The other thing I was going to say about our podcast coming up, I’m thinking, well, we’re covering a lot, we’re going to cover in there, but we’re going to take it slower. We’re going to have graphics and visuals, and we’re going to really give you step by step instructions.

So, I’m looking forward to that because every time we do one of these, I learn something, as well as kind of brush up by skills. So, we learn from this as much as listeners.

Micah Shilanski: And one of the things we’re really big on is answering your questions. And that’s the one thing Tammy and I miss. We love the podcast, we love our listeners. So, don’t take this the wrong way.

But we love the live presentation, because we get to interact with you. We get to answer your questions. So, make sure you have those ready for us. Thank you, guys, so much. And until next time, happy planning.

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