Listen to the Full Episode:
The effects of inaccurate information can be devastating, and there’s a lot of questionable information out there. So, in this episode, Micah and Tammy discuss some important things to be aware of when it comes to a Federal employee passing away. They both draw from some recent situations they have had to help clients through and share tips on how to avoid common mistakes.
There are some key things to do and not to do in this situation, so Tammy and Micah will share a few of these to ensure you don’t have to worry about being in a frustrating situation like many others. Listen in to learn ways that you can prepare before death happens, the first steps to take after death happens, and the importance of getting help reviewing paperwork (and ensuring you’re getting help from the right person).
What We Cover:
- The devastating effects of inaccurate information.
- The first thing you need to do when a spouse passes away.
- What to leave behind for your spouse that could make the transition easier.
- Why you need to reach out for help and why HR may not be the best place to go.
- The benefits that affect the spouse and how the length of work matters.
- The importance of having someone look over all documents.
- A common mistake people make when it comes to healthcare.
- Why it’s crucial that both spouses know where all your important documents are.
- What happens when an employee dies before hitting 10 years of service.
- Understanding the emotionally compromised state your spouse will be in and how to ensure someone is there to help them.
Resources for this Episode:
Ideas Worth Sharing:
You really have to be careful about who you’re talking to and knowing how to know the information is accurate. – Tammy Flannigan Click To Tweet
My rule of thumb when a client gets paperwork is to hit the pause button. We have done this hundreds or thousands of times before, so I tell them they can fill it out but do not sign so that we can review it. – Micah Shilanski Click To Tweet
The risk that you have of them losing healthcare coverage is great. If you want your spouse to have healthcare into retirement, then get them on FEHB today. – Micah Shilanski Click To Tweet
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Full Episode Transcript
With Your Hosts
Micah Shilanski and Tammy Flanagan
You can spend. You can save. What is the right thing to do? Federal benefits, great savings plans too. You can save your own way, with help from Micah and Tammy. You can save your own way. Save your own way.
Micah Shilanski: Welcome back to the Plan Your Federal Retirement Podcast. I’m your co-host Micah Shilanski. And with me as usual, is the amazing Tammy Flanagan. Tammy, how’s it going?
Tammy Flanagan: I’m doing great Micah, how about yourself?
Micah Shilanski: Ah, it’s another day in paradise. We’re in that fall time period. Eventually, it’ll stop raining. And we’re actually moving into a new house soon. So, a lot of exciting things going on up here.
Tammy Flanagan: Very exciting. And we are excited here in Florida as well. Looking forward to, not the hurricane that’s coming tonight. So, we are luckily not in the evacuation zone. So, so far so good, it’s the calm before the storm.
Micah Shilanski: I’ve really never been through a hurricane, it doesn’t happen often in Alaska. But kind of that eerie calm that’s going to be there; do we have everything done? And then you’re just kind of sitting around waiting for it, I guess, right?
Tammy Flanagan: Yeah, I think the good news about a hurricane is you normally have a little bit of advanced warning, so you get time to put up the shutters. Sun’s still shining. So, the rain doesn’t start until you’re all finished, usually.
Micah Shilanski: I was going to say nice, because we deal with earthquakes frequently. And the nice part about earthquake is you don’t know they’re coming. There’s nothing to worry about.
Tammy Flanagan: There’s nothing to prove it.
Micah Shilanski: That’s right. Alright. Well, we did have some pretty important stuff that we want to talk about. I know Tammy, recently (we were kind of sharing about this before the podcast), I’ve had a couple of clients pass away. I’d have two clients recently pass away and a third one that’s on hospice.
And then Tammy, you’ve kind of had the same thing, a couple of people reaching out on some people that have passed away. And it really brought the light to this podcast. And we got the estate planning that we’re going to be chatting about on the webinar, we have some great things coming out on that.
But there’s some really important things to do, and more importantly, things not to do when somebody passes away. And these are some mistakes that we really help a lot of people avoid and sometimes, we’re kind of cleaning up afterwards.
So, we thought it’d be great to just jump on a podcast and it’ll be a little bit more serious. Hopefully, we’re going to make it a little bit fun as we go through this. But these are really important things and a lot of stuff we can set up in advance, to make it easier on those we leave behind.
Tammy Flanagan: Yeah, it is so important. And I know like most of us hopefully are not experiencing this at the moment, but hopefully, some of what we’re going to talk about will ring a bell in the back of your mind someday when you do need this information, you’ll know where to find it, and you’ll kind of have some guidance I think that you’ll remember from this.
So, we’re going to hit some of the high points. And like I said, like you said, Micah, we’ve been through this so many times just recently with people who have been getting either false information or misleading information. And you really have to be careful who you’re talking to and knowing how to make sure that the information is accurate.
Micah Shilanski: Yes. Really, really, important to make sure that information’s accurate. We’re going to share some stories of some inaccurate information that clients have received and that can be devastating.
So, how do we know the information’s accurate? What should we do? We’re going to be walking through these things.
So, I guess, Tammy, let’s kind of start there about saying — I guess, we’ll save the what nots, dos for a little bit of the end. But God forbid, if somebody has passed away, whether it’s a federal employee and a spouse, what happens? What changes in that?
So, let’s take a federal employee first, federal employee’s passed away, they leave behind their spouse, what changes for the spouse?
Tammy Flanagan: Yeah, I get this question in seminars from the employee saying, “What should I tell my spouse to do if one day I don’t wake up?” And I said, “Well, the first thing is they got to call the office and say, you didn’t wake up today.”
And the office will generally put you in touch with the human resources office who should be able to guide you through. In some cases, in fact, in many cases, this is treated like a family member in many agencies. At least that’s how I see it in most cases.
Which means that person from HR will stop what they’re doing that day. They’ll drop everything. They might even say, “We’re going to come out to your home, we’ll help you fill out the papers and we’ll take care of it.”
So, if you’re fortunate that you have an HR office like that, that’s local, that’s what’s going to happen.
Unfortunately, today with everything kind of at a distance and everything consolidated and a little bit less of that personal touch, you may not find that your spouse will get that kind of attention or that type of information.
So, I would want to leave behind some instructions, perhaps for my spouse to say, “Hey, if something happens to me, here’s what you’re entitled to. Here’s even the websites to go to, how to report the death, how to work this out through the HR office.”
When it’s an employee who dies in service, the information has to go through HR because there’s payroll information. There’s personnel information, that OPM, the Office of Personnel Management just doesn’t have.
So, you do have to work through the agency, but you can always run a double check to make sure that all the Is are dotted and the Ts are crossed before you really know exactly what you’re dealing with.
Micah Shilanski: Now, Tammy, my general rule of thumb whenever a client is going to go do paperwork is hit the pause button. Don’t fill out the paperwork just yet. We have been through this hundreds, if not thousands of times before; you can fill it out, but don’t sign it. Let’s review it before it’s signed. Especially if there’s any way that we are emotionally or cognitively compromised.
And let’s face it, the death of a loved one, we are cognitively compromised. We’re not thinking very clearly in this. And so, you really need a trusted person that you can reach out to, to say, “Hey, is this correct?”
And I would love to be able to say it’s your HR person, but I think two realities that are there is one, is you may not have a local HR person that’s actually going to do this.
And two, we’ve heard some kind of bad things that have come out of the HR office or incorrect things that have, and before you start signing forms — and I don’t think claim forms — there’s really nothing irreversible on there. There’s nothing bad on there that I can think of that’s going to get you into hot water.
But as a general rule of thumb, I really like hitting that pause button, bring in somebody else who can review this stuff, really understand it, and make sure you’re in a good spot. What are your thoughts on that?
Tammy Flanagan: Oh, I totally agree with you because like I said, and like you’ve seen as well, we’ve been getting emails from people that I’m like, where are they hearing this from? Or who has told them to do these things as far as losing health benefits.
If your spouse is in a Self Plus One or Self and Family Plan and you’re that family member, if they pass away, generally speaking, you’re going to continue health insurance.
It may not seem like it right away. In fact, you might even go to the doctor and they check on your insurance and they might say your insurance was terminated. Because sometimes that’ll happen when a death is reported. So, they just shut everything down.
But know that that will be backdated eventually, and you will get those insurance benefits as long as you were covered on the date of death in that Self Plus one or Family Plan.
Now, on the other hand, a surviving spouse who was not in the FEHB Program cannot enroll themselves. So, it’s very important that if you have a spouse or a child who might need coverage in the future, keep in mind that if something happens to you before the future gets here, they cannot enroll themselves as a surviving family member.
So, they have to be covered on the date of death. It doesn’t have to be for five years, but it has to be at least a day.
Micah Shilanski: Boy, Tammy, and I think you’re saying it very nicely. I’m a little bit more stern on this with clients about saying “No, if you have FEHB and your spouse at any time needs to keep this into retirement, they need to be on FEHB today.”
Even if they have the great other plan, even if that plan is free because it’s covered by healthcare or it’s like $50 and it’s so much less expensive, the risk that you have of them permanently losing health and coverage is great. And that’s a lot of money that’s going to be there.
Now, maybe they’re covered by a stated employer that has healthcare and retirement. There’s some other reasons out there that we can have a good discussion on this. But if you want your spouse to have health insurance into retirement, they need to be on FEHB today. Unless you can tell me the exact time and day you’re going to die.
Okay, well then, we can be open to a little bit more creative planning – short of that, since we don’t know it, man, it has to be today. Because Tammy, that’s one of the two requirements that spouses have to meet in order to get health insurance into retirement.
Number one is they have to be on FEHB before you die. And number two, they got to be receiving a survivor pension, right?
Tammy Flanagan: Yeah. And that can be a problem sometimes if it’s an employee who passed away. Because that employee might have just started working for the government a short time ago.
So, in order for a survivor benefit of any kind to be payable, that employee has to have 18 months of service. So, as long as they’ve been employed 18 months, covered under FERS or CSRS, but we’re mostly talking about FERS today, that spouse, if there is a surviving spouse, would get something called a Basic Employee Death Benefit or BEDB as OPM refers everything by an acronym.
But the Basic Employee Death Benefit is only a spousal benefit and it’s payable as long as that employee had worked for 18 months. It’s only for an employee who dies, not a retiree. But it equals quite a bit of money, it’s worth half of an annual paycheck. So, if your annual salary’s 150,000, the spouse would get $75,000.
And there’s another component to it that right now, is almost $40,000. It goes up every year with the COLA and that’s all part of that Basic Death Benefit, where the spouse will receive that either in a lumpsum or they can choose to take it over 36 payments to kind of stretch it out.
And I don’t know if you’ve been familiar with this Micah, but I believe they can even transfer it to an IRA, because it is a retirement payment.
Micah Shilanski: It’s a retirement benefit, yeah. And that also means it could be transferred to a Roth IRA or you could do a Roth conversion. Which is kind of a double little benefit that you get here. So, but you have to do that. There’s no undo button on this, that has to be done at the time when filling out the paperwork and done correctly.
Tammy Flanagan: When you claim the benefit. Yep.
Micah Shilanski: Yeah.
Tammy Flanagan: So, that’s the one thing. And even though that’s not a lifetime payment, even if that’s all the spouse gets, they would be eligible to maintain health benefits.
Now, since they’re not getting a recurring lifetime survivor annuity, they would be billed for the insurance premium, but they would still have entitlement, like you said, as long as they were covered on the date of death.
Now, if that employee has more service, if they have 10 years or more, and passed away, then not only would they — I always feel like I’m giving a prize here, not only do you get the Basic Death Benefit, but you also-
Micah Shilanski: But wait, there’s more.
Tammy Flanagan: There’s more. You get the lifetime survivor annuity, which is worth half of that employee’s earned retirement. So, if the employee died with let’s say 20 years of service and they were only 50-years-old, that earned annuity would be worth 20 years times 1% times their high three.
So, if their high three was a hundred thousand, let’s say that’s 20,000 a year, the survivor’s annuity lifetime benefit would be 10,000 or half of that earned annuity. And that’s payable immediately. You don’t have to wait until the employee would’ve been eligible for it.
Micah Shilanski: Now Tammy, walk me through that a little bit more if you don’t mind. So, we have two categories (well, I guess three); less than 18 months, 18 months to 10 years of service, and then 10 years of service after. Is that correct?
Tammy Flanagan: That’s right. And we didn’t talk about the less than 18 months, but there are sometimes benefits there. Because as soon as you come on board, most federal employees remember their EOD period. Whenever they came on board, they might have had an orientation, and if nothing else, they had a stack of forms to fill out.
And in that stack of forms there were beneficiary designations, for life insurance, for FERS retirement benefits, for unpaid compensation, which is your last paycheck, any unused annual leave benefits. And then also, of course, for the thrift savings plan. So, there’s four different beneficiary forms and those beneficiary forms designate who’s going to get a one-time payment.
So, when we’re talking about retirement, whether it’s a spouse, whether it’s a child, whether it’s a brother or sister, best friend who survives that employee who died, if that employee had less than 18 months of service, the only thing payable from FERS would be the contributions, that 0.8% or 3.1; whatever that employee was paying into FERS would be return to the beneficiaries as a lumpsum.
Micah Shilanski: Well, I guess all of that now would be more than a 0.8%, with FERS RAE and FERS FRAE now in in place. Yeah.
Tammy Flanagan: 4.4 or whatever. So, now, it’s becoming more like the civil service contributions, which were much more substantial. So, that’s the return.
But if the employee had 18 months, that’s the lumpsum Death Benefit that I talked about, that’s only payable to a spouse. So, if there is no spouse, if there’s no dependent children who survived the employee, then again, the return of the contributions.
And then the third category was if they had 10 years or more and are survived by a spouse, then it’s the Basic Death Benefit plus the annuity. Now, that lifetime 50% annuity is again, only payable to a surviving spouse or possibly first come first served, a former spouse with a court order. So, that could also be the case.
So, if you have gone through a divorce, be really sure that you know what it says in the divorce decree regarding any survivor benefits, FERS benefits, life insurance, you name it, because those can be now certainly specified in a divorce proceeding.
Micah Shilanski: And Tammy, I would say this isn’t what you think the divorce decree says. This is what it actually says. And the reason I bring this up is so often, I get clients that are remarried and they’re going to come in and they say, “Well Micah, this is what our divorce decree says.” “Great, would you please bring it in so I can review it?”
“Not an attorney, not legal advice, but I’d still like to take a peek at it. I’ve read a few of these.” And they’re like, “No, no, no, I know what it says.” It’s like, “You know what, I’m sorry this is just a requirement. I will not do any retirement projections unless I get this divorce decree.”
And then they bring it in, they’re like, “See look, she doesn’t get in my pension.” I’m like, “Aha, she actually does get your pension. That’s not what this says.” And they get very frustrated in there. And then we can go back to the attorneys, we can look at it.
But you really have to understand it’s not what you think it says, it’s not what you remember happened 20 years ago. What does the document actually say? And again, sometimes, we’re still emotionally compromised 20 years after the fact and we’re not really reading it for what it says, we’re reading it for what we want it to say. You got to be careful of that in these documents.
Tammy Flanagan: Yeah, and sometimes it might say something that just isn’t true. Such as let’s say it says you’re going to get the survivor benefit in the divorce, but as soon as you went through the divorce, you got remarried when you were 42-years-old. So, remarriage before 55, you swapped it at that court-ordered benefit.
So, just because it says it in there, doesn’t always mean it’s going to be payable. You can lose entitlement to it by remarriage. And most former spouses somehow know that, and they wait until after age 55. But I guess there’s a few that may not be aware or don’t care, one or the other.
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 spouses, 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.
Every federal employee should join this incredible power session to learn more how to optimize their survivor benefits, ensure they’re not disinheriting their spouse inadvertently, take care of adult children, elderly parents, and make sure that all of your benefits are optimized and working in concert with your greater estate plan.
We will provide you with a checklist of everything that you need to go as a federal employee and make certain is in order.
You will leave this power session feeling that you have a better understanding of how survivor benefits work and what you can do today to make sure that everyone you love is taken care of.
Join us for this powerful session on survivor benefits and estate planning. Go to planyourfederalretirement.com and reserve your seat for this powerful session today.
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.
Here at Plan Your Federal Retirement, we want to empower federal employees to maximize the benefits that they’ve worked so hard to earn throughout their career. But we cannot do that without you.
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.
Micah Shilanski: Tammy, one question I had for you. So, we got these three categories, less than 18 months, 18 months to 10 years and more than 10 years. Don’t you love these random questions — so what if somebody had five years of federal service and was 62 and passed away?
Five years of service, they’re vested for their pension. If they would’ve retired, they could have turned a pension on. What would the surviving spouse get?
Tammy Flanagan: That’s a great question Micah, because that takes away that 10-year requirement, an employee was eligible for an immediate annuity. So, my guess, and I would have to look this up, maybe you know the answer — my guess is they would still get the survivor annuity, but do you know for sure?
Micah Shilanski: I do not know for sure. We should have pre-gamed this one. Sorry about that. I have finally stumped Tammy. My life mission is complete.
Tammy Flanagan: I know, that’s a good one. I will look that up and I will let you know. But yeah, we see that a lot, because we do see employees come on board in their later years and they might only have five or six years of service. So, that’s a good one.
Micah Shilanski: And we’ll make sure we put that on our show notes to planyourfederalretirement.com/62, this episode 62 of kind of what that is.
But these are all little things. And this is the reason I kind of wanted to bring up this question. You have guidelines or rules that are out from OPM, but sometimes real life doesn’t fit into those rules.
And that’s where we can see HR starting to make mistakes. And I’m not trying to rag on them. I think they’re completely undertrained; they don’t have enough education on how benefits actually work.
But that doesn’t mean you are responsible for knowing what this is. Just like you’re responsible for your finances, for your taxes, for your estate planning. Even though you hire the professionals, you are still responsible for knowing this.
So, one of the mistakes that we have found that people have made Tammy, when they’ve gone through this, is sometimes, and you brought this up before but I wanted to highlight it, when they pass away, is that all of a sudden, health insurance, FEHB isn’t covering anything.
They think they no longer have health coverage and they go out on the open market, they go somewhere else to get health coverage. When really, it’s the right hand just doesn’t cut up to the left hand just yet with the government, that as long as you’ve met those two requirements we talked about earlier, you’re going to get health insurance. But that means there may be a period in time where claims aren’t being paid.
So, I tell all my clients, in fact I had a conversation with one two weeks ago after her husband passed away. I said, “Do not pay any medical bills for probably the next six months.” And her daughter was like, “Whoa, what’s going to happen to her credit?” I was like, “Well, one, your mom is 82, she’s not buying anything. I’m not super worried about her credit.” I was like, “But it is not going to be probably negative, effective on your credit.”
But what we see happen a lot of times is you get bills that are coming in. You’re not in a good cognitive place, you pay the bills, it was should have been covered by insurance and now, it makes this process even longer.
In my limited experience in this, we’ll let the insurance companies duke it out with the doctor’s office. Let them flush everything out for the next six months until we know that your benefits are turned on, then we can look at them to make sure they’re paid.
So, I’m not saying don’t pay your bills. I’m saying wait until it’s made sure it’s gone through insurance. Because there could be a time where Blue Cross says you’re not covered, because they don’t know that you’re on survivor benefits yet.
Tammy Flanagan: Yeah. This is a good time when it pays to pick up the phone, call the billing office, let them know what you just went through, and tell them you’re still waiting to get all the dust to settle. And it does happen that the insurance will get terminated and you get panic mode.
In fact, I had a woman whose husband passed away, the HR office told her that your insurance is being terminated and they instructed her to go out on the marketplace and buy I insurance for her and her son. And was paying $900 a month for a Marketplace insurance, which was totally unnecessary. But she was given bad instruction. So, once-
Micah Shilanski: And she doesn’t get that money back.
Tammy Flanagan: No. I’m sure if she called them up and said, “Hey, I shouldn’t have been paying you.” They’re not going to say, “Hey, here’s your check back for $27,000.” Forget it.
So, yeah, it all gets backdated and it all comes out in wash. But in this day and age, you would think everything’s electronic and instant. It is not. There are backlogs at every step of this process and sometimes, it can take months, if not up to a year to resolve some of these claims for Death Benefits.
Micah Shilanski: Tammy, this is one of the reasons that I really say it’s important to have great documentation on these things. Where not just, you know where it is, where your spouse knows what it is, where your kids know what it is. Who’s your trustee, your representative, your financial professional? All these people need to know where these things are.
And so, what documentations am I talking about? One, what’s your estate planning documents say? Do you have a will, a healthcare directive, a durable power of attorney, a trust? Where are those at and can they easily get access to them?
A place I don’t want to see these is in a safety deposit box, because something happens to you, what’s the documents that allows them to get into the safety deposit box? The documents that are in the safety deposit box. This creates a little bit of a snafu.
But also, with that estate planning, I want to see a copy of your taxes. Why do I want to see your taxes? Well, this happened with a spouse a couple weeks ago. She was like, “You know what? My husband called Bob; Bob passed away. I know he has a small pension. I have no idea where that pension’s coming from.”
They’ve been getting his pension for 30 years. He passed away in his mid-eighties. She doesn’t remember where the pension is. Great news, it’s on the taxes. We pull up the tax return, we grab the 1099-R, here’s the institution we can go back to.
So, taxes, knowing where that money is, is coming from is really important. Helps you notify where to go.
A net worth statement or a death worth statement where we provide all of our clients, where’s all your money at? In what ownership? How much does Tammy own, how much does Brian own? What is that delineation between the two? And this really helps the notification process.
And then I love a beneficiary report and we do this every two years with our clients, is we go through every single financial asset they have and say, “Great, show me proof of your primary and contingent beneficiaries.” And we put them together on one-page document. Sometimes, it’s two pages. So many beneficiaries.
But we put them together on a couple pages and we constantly hand this back out to our clients and to say, “Hey, you need to keep this with you.” Because the reason we’re doing these is from problems that we’ve seen before with clients, is that Bob and Sue die or Bob passes away and then where’s Bob’s money at? How many bank accounts does he have? Where is he at? Who’s the beneficiary on that?
Well, guess what? The beneficiary on this account’s different than the next account, which is different than his trust and it’s completely different than his will. None of these documents match. And this creates havoc with your spouse and with your loved ones that are there.
So, it’s really important to grab this information and put it together. Sorry, I’m getting all preachy on my soapbox here.
Tammy Flanagan: Well, add to that, passwords. I know when my friend lost her husband suddenly, he was in only in his fifties and she had no clue where he kept his passwords or what they were to get into any of these accounts to even find out what was there. She knew what he had, but he didn’t keep anything in paper. It was all password protected on his computer.
Micah Shilanski: I’m pulling up my iPhone right now, so forgive me when I’m looking at it. But you can actually have trusted contacts inside of your phone. And so, you can actually put, inside of your iPhone, you can add a beneficiary to it now.
So, your iPhone has a beneficiary. Do you have that filled out? Do you have that set? You should have your trusted contacts inside of your iPhone set with a primary and a contingent person. Because if you die, who has access to your iPhone?
That has all your pictures, that has your passwords, that has all of this other stuff in it that we value. It’s no longer like grandma passed away, we go home and we see your photo album, we can separate it out, it’s all on iCloud. Who has access to that?
Tammy Flanagan: Huh. Well, you’ll have to teach me how to do that, Micah, I don’t even know where to find that.
Micah Shilanski: Ah, yeah, I’d be delighted to. We’ll do a little video on it. I’ll shoot it over.
Tammy Flanagan: Let’s do a video. Hey, in the meantime, I was looking up and I still don’t know the answer to our question about what if the employee died with less than 10 years of service?
Micah Shilanski: Yes.
Tammy Flanagan: Here’s what it says — this is in the OPM handbook called Spouse Benefits, Death of an Employee. It says, “The benefits to a surviving spouse in a death in service case are very different from the benefits payable in an optional retirement or disability retirement case. This is especially true when the employee had less than 10 years of service and no survivor annuity is payable.” So, you do have to have the 10 years.
Micah Shilanski: Well, you got to have the 10 years. So, this doesn’t mean if you have less than 10 years, if you’ve only have five years in a vast way, the spouse is not disinherited, they’re still getting a benefit. They’re still eligible for FEHB as long as you’ve met those two requirements. But they’re not getting it calculated based on the five years of service.
Tammy Flanagan: Right. They’re just going to get the lumpsum Basic Employee Death Benefit.
Micah Shilanski: Interesting.
Tammy Flanagan: I didn’t know that. See we both learned something today.
Micah Shilanski: Ooh, I love it. This is what I love with benefits. You think you know it all and you don’t.
Tammy Flanagan: Yeah. It says, let’s see, “In addition to the Basic Employee Death Benefit,” that’s the one we talked about, that’s half the salary rate plus the 39,000; “A monthly survivor annuity is payable to a spouse if the employee had completed at least 10 years of total creditable service and died while subject to FERS deductions.” Those are the two requirements. Interesting.
Micah Shilanski: And you just said something else that’s really critical, just to make sure our listeners hear that; “Of creditable service.” So, if all of a sudden, if somebody had one year of temporary time and then nine years of creditable service, that’s not 10 years.
Tammy Flanagan: That’s not enough. That’s right. Also, if they had military service and didn’t pay the deposit, the surviving spouse will have the option to pay the deposit. So, that could be … you still have to have five years civilian service. But the other four or five years could be military service.
Micah Shilanski: That could be a great benefit option. Okay.
Tammy Flanagan: Absolutely. So, yeah, there’s a lot of little nuances here. And the other thing I was thinking of when you were talking was, we were talking about court orders and what it says in there and how to know that.
There was another example I’ll give you of a woman whose ex-husband passed away. And in the court order, it said that he was to maintain his government life insurance and to keep her … that’s not enforceable in a court order.
So, when he passed away, she went and contacted OPM about getting whatever was left of his life insurance. And they said, “Sorry, he canceled his life insurance. Stop paying for it.” So, it was gone.
So, what could have happened or what could happen now that would be a better solution to make sure that that happens is that in the court order, it could have assigned the life insurance, made the owner of the life insurance the former spouse, so that then, he couldn’t cancel.
Now, it’s her policy upon his death, which is kind of scary to have somebody else be in charge of your life insurance. But that’s one way to ensure that she would’ve forever been the beneficiary of that policy. But unfortunately, he had canceled it and there was nothing payable.
Micah Shilanski: And that brings up a great point. I think we talked about it in another podcast, maybe it was a webinar. I’m a huge fan of cross-ownership life insurance.
That is whoever the beneficiary needs to be, should probably be the owner of that policy. Reasonably so. My kids are not the owner of my life insurance policy. They’re 13 and 11. No, they’re not getting that.
But you know what, my wife, there’s a great argument that my wife should be the owner of the policy, because what happens if I’m just busy and I forget to pay it? And yes, it affects me, but it also doesn’t affect me.
Versus her, nope, that is directly affecting her. If I die as the sole breadwinner in the family, that creates one heck of an issue, that life insurance is very important to her to make sure she’s taken care of.
So, even in a non-divorce issue, I’m a big fan of some cross-ownership life insurance to make sure the spouse that’s the beneficiary knows what’s happening with the policy. Because at the end of the day, it’s really their policy. This is why you bought this.
You didn’t buy it for yourself, because you are dead. You bought it for your loved ones, should they be the owner of it. That’s worth a conversation.
Tammy Flanagan: Absolutely. I remember when I left federal service and we had young children, I bought a term life insurance policy for 20 years and my thought was in 20 years when my youngest child is 20, that I wouldn’t need it anymore.
So, when that policy came due and they offered me to renew it, I’m like, “Heck no. I’m not renewing $300,000 worth of life insurance now at my current age.” So, I turned it into a small whole life policy just to have a little bit of insurance in place. And I thought that was adequate.
Well, unfortunately, my husband disagreed with me. I think he would’ve wished he was the owner of that policy, so he would’ve had some say, so I never even thought to ask him. But you’re right, it was really for his benefit, not mine.
Micah Shilanski: Yeah. And it’s easy. And that’s the reason I love the cross-ownership. Because it’s easy to think, “Oh it’s my policy, I’ll make these decisions.” It’s like, “Well, no, it’s really your beneficiary’s policy at the end of the day, because that’s where that money’s for.”
Tammy Flanagan: And honestly, I should have discussed it with him. I was just thinking it’s what the plan was for 20 years. I just initiated it.
Micah Shilanski: Yeah, it wasn’t malice at all. It was just, yeah, just one of those things.
Tammy Flanagan: One of those check the box things. Never thought about it, I’m guilty of that.
Micah Shilanski: Like most podcasts, we’ve only gotten to a handful of our notes that we write down. We’re like, “Oh, we got to cover all these things.” Then we start getting into them, we’re like, “Wow, this is a lot of content to cover in a short period of time.”
And I think what I really want the essence of our listeners to take away from this Tammy, and of course, feel free to disagree, is this is not as simple as you might think and you’re in an emotionally compromised position.
You need to put someone in your life or at least have someone in the plan that you can reach out to that says, “Hey, if something happens to me, I want a third party to review this. I want someone else to walk through these steps with me.” Because these are important things. You need to get them ready before you pass away. But you also need that plan after you pass away, who’s there?
I’ve interviewed several other financial planners because if something happens to me, where does my wife go? Okay, I have other planners in my firm like my dad and my sister. But okay, now, my wife is asking my sister for money under the accounts. Ooh, I don’t really see this going out well on a good family thing.
So, we have a network of other advisors. God forbid of something happens to me, I want a good person in Kelly’s life that she’s going to be able to reach out and ask some great questions too.
Same thing. And I get a lot of times that sometimes clients will hire me, that the spouse is doing a great job with the finances, but he’s like, “You know what, if I die, my wife needs somebody because she doesn’t do any of the finances.”
And sometimes, it’s the other way around, but who is that person? And let’s make sure you have it outlined.
Tammy Flanagan: Yeah. I think that that is one of the real benefits of having a professional in your life to help with that. Whether it’s an estate planning attorney or a financial advisor, I think is even better because this is someone who’s not emotionally attached to your family.
It’s somebody who understands everything that you have and you own and where it was intended to go to. Probably had a conversation with you within the last three months or so. And so, they have a feeling about what your thoughts were, what you wanted to do and they can follow through with what those wishes were. So, very good advice.
Micah Shilanski: Awesome. Well, Tammy, this podcast is all about action items and I already got our third one. I’m going to walk us through online together on how to set up your digital legacy context. That’s the third one. So, you got to stay tuned for that.
But for the first one, what’s the first action item for our listeners?
Tammy Flanagan: I would say number one, those beneficiary forms that you filled out on the day you were hired, maybe it’s time to file new ones. Maybe it’s time to at least see where you put them.
If you don’t know where they are, if you can’t put your finger on them, it’s time to file new ones, update them. The most recent one on file will take precedence.
Micah Shilanski: I’m just spreading my notes in here. Yes, I totally agree. It’s not only it takes precedence. Whenever we make a change in an estate planning document, I’m a huge fan of change all beneficiaries to make it correspond. If we change beneficiaries, we change them; a trustee, not a big deal.
If I change one of the beneficiaries, man, I want to go look at all accounts and if that affects one account, I want to change them all because now, I got a stake in the ground that when I did this, I updated all beneficiaries at the same time.
And it helps a little bit after you pass away with the kids too, just saying no, this was cognitive, this was what they intended to do. They transferred, changed all the accounts. So, I’m a big fan of that one.
Another one I’m going to say is a net worth statement. You got to get a net worth statement in place. Where are all of your assets at? That’s what I want to see. Whereas everything at, is it his or is it hers? Where is that going to be and why is this important?
Because God forbid, if something happens to you, all those accounts that you know in your mind that you know your spouse knows about that they don’t actually know about, those are going to be a problem.
And we see them all the time is that sometimes we have his, hers and our accounts, which is great. My wife and I do the same thing. It’s great while we’re married, but if I pass away, what access does my wife have to my accounts and does she know where they are?
Tammy Flanagan: Yeah. And does she know the passwords? Make sure you both know. We keep a spreadsheet between the two of us and my husband’s really good about keeping it up to date.
So, every once in a while I’ll say, “Hey, what’s the password for whatever account?” But he has that sheet and I know where it is. So, if something happened, I could get into everything that we both have.
I think that’s important, because that can just be a simple thing that can cause a major headache and delay.
Micah Shilanski: And then make sure too, you have legal authority to do that. So, when you pass away, if you log under someone else’s account without — and they’re dead, that’s called fraud.
And so, there’s RUFADAA? (I’m going to miss it), but there’s a Digital Assets Act which got passed a year and a half or so ago that should be in all estate planning documents. And you’re allowing, giving somebody else access and permission to all of your digital assets, which would allow you to do these things. So, important to do.
Alright, Tammy, you got your iPhone handy?
Tammy Flanagan: I do.
Micah Shilanski: Alright, let’s pull it out. Let’s see how good our live tech support is. This could go good, this could go horribly wrong. We’re about to find out.
Tammy Flanagan: You have a student here that may not be able to do it, but I’m going to give it a shot.
Micah Shilanski: So, if you’re driving, don’t do this. Everyone else pull out your iPhone with us. So, open up your settings app on your phone.
Tammy Flanagan: Okay, got that.
Micah Shilanski: Then at the top, it has your name and so click on your name.
Tammy Flanagan: Got it.
Micah Shilanski: And then the second one down on mine, it says password and security, go ahead and click on that.
Tammy Flanagan: Alright.
Micah Shilanski: And then scroll to the bottom under password and security and it says legacy contact.
Tammy Flanagan: Look at that, “A legacy contact is someone you trust to have access to the data in your account after your death.” And I can add somebody right there.
Micah Shilanski: You got it. And so, right there you can add legacy contact. Just like in all good beneficiary forms, I would have more than one.
Tammy Flanagan: Good pick. It gave my husband’s name.
Micah Shilanski: Oh perfect.
Tammy Flanagan: It says, “Brian Flanagan, an adult or choose someone else.” Oh, I’ll take him.
Micah Shilanski: Yeah. So, in your case, Tammy, the thing to think about is, do you choose Brian and both your boys? Do you choose someone else? Because what happens if something happened to you and Brian.
Tammy Flanagan: Oh yeah.
Micah Shilanski: Because there’s no contingent beneficiaries that I can tell on here. My understanding of this very basic is they all get access to it. So, anyways, something for you to think about.
Tammy Flanagan: I love it. I learned two things new today. Boy, it’s been a great day.
Micah Shilanski: Woo, man. Just in time for the hurricane. Fantastic.
Tammy Flanagan: I know. Very good.
Micah Shilanski: Awesome. Well, Tammy, as always, thank you so much for joining on the podcast. It’s always just a pleasure to talk with you and to be able to discuss some federal benefits.
Tammy Flanagan: Thanks, Micah.
Micah Shilanski: Great. Until next time, happy planning.
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Can a divorced spouse of a federal worker receive any benefits if they were married for 20 years?
Couple of clarifying questions on the 5 credit cards. 1. what is the best way to go about finding a credit card for each of the 5 categories? 2. would vehicle expenses go under travel or household? 3. For kids other than daycare, what other types of expenses would you include? ie sports fees; clothing; medical??
Thank you for your time.