Reviewing Your Estate Plan Mid-Career

Edward A. Zurndorfer-

Every federal employee needs an estate plan. Some employees have been working in federal service for many years. They have young families or other relatives who depend on them but yet these employees have no formal estate plan.  It is important for employees to understand that there is more to an estate plan than establishing complex trusts in order to avoid paying federal estate taxes and/or state estate and inheritance taxes. As the current COVID-19 pandemic crisis in which hundreds of thousands of individuals (young, middle-aged, close-to-retirement, and retired) have unfortunately died has taught us, death and incapacity have no age bounds. All employees should have an estate plan in order to prepare for events that could result in their suddenly being incapacitated or dying.

A complete estate plan includes having a will or a living trust, a living will, a health care power of attorney or advance health care directive, a financial power of attorney, if applicable -naming guardians for minor children, and making sure all beneficiary forms are filled out, submitted and up-to-date. This column discusses in somewhat more detail what a complete estate plan includes, and why it is important for every employee to have an estate plan and to make sure their plan is current. Furthermore, it needs to be emphasized that this column is not intended to give legal any advice nor is it a substitute for legal counsel. Any specific questions regarding one’s estate plan should be directed to and discussed with a licensed estate attorney.

For those employees who in fact have no estate plan or perhaps they have an estate plan that was established more than 10 years ago, they need to ask themselves two questions in order to establish or update their estate plan. The first question is: If I become incapacitated because of an accident or a prolonged illness, who would manage my financial assets including paying my bills, making financial-oriented decisions, and saving for my retirement? Who would make decisions regarding my medical care if I am unable to make these decisions, including making the decision for any needed surgery or medications?

What are the most important legal documents each individual should have in place in order to plan for incapacity? These documents are:

1. Durable power of attorney. This is a written document that allows one person (“the principal”) to empower another person (the “agent”) to act on behalf of the principal for financially oriented decisions. Among the “powers” granted to the agent through a durable power of attorney: (1) Writing and signing checks on behalf of the principal; (2) making withdrawals from bank checking or saving accounts or brokerage accounts on behalf of the principal; (3) signing the principal’s federal and state income tax returns; and (4) to buy, sell, or lease assets on behalf of the principal. A single individual needs to consider if he or she became incapacitated and could not pay his or her rent or mortgage, utilities, debts and who would be able to step in to pay these bills? The answer is the agent as designated in the durable power of attorney. Married couples are advised to have a durable power of attorney in the event both spouses become incapacitated.
2. Advanced Health Care Directive (AHCD). This contains a health care directive and now replaces legal documents commonly known as durable health care powers of attorney.
3. Living Will – a written directive to doctors and hospitals. Applies only if principal has incurable condition or disease and is terminal (expected to die within six months).

The second set question an individual must ask himself or herself: If I were to die, (1) What arrangements will be made for my funeral, including whether I will have a formal funeral service,  whether I want to buried and where, or whether I prefer to be cremated; (2) How would my assets – all of my possessions – be passed onto loved ones in the least amount of time and at the least amount of cost?; and (3) How will my leftover bills and my leftover debts be paid and by who?

Important documents that every individual should have and some important tasks that should be performed in planning for one’s death: 

1. Will or living trust;

2. Irrevocable trust if federal or state estate taxes may be due:

3. Proper titling of assets – if a financial asset is jointly owned (for example, between a married couple), then upon the death of one owner then ownership reverts to the surviving owner by “operation of law”; If assets are singly owned, then there are some assets in which a beneficiary can be designated.

4. Beneficiary designations – are all beneficiary forms filled out and current. The following are the most important beneficiary forms that employees should make sure are filled out and current:

a. SF 1152 – designation of beneficiary for unpaid compensation and unused annual leave of a deceased employee;

b. SF 2823 – designation of beneficiary of the Federal Employees Group Life Insurance Program (FEGLI);

c. TSP-3 – designation of beneficiary for the Thrift Savings Plan; and

d. SF 2808 (CSRS) and SF 3102 – designation of an employee’s CSRS contribution and FERS contributions, respectively.

In addition, if an employee can name a beneficiary for a bank account (checking or savings accounts, CD) through a “Payable on Death” (POD) beneficiary designation. A beneficiary for a brokerage account that holds stocks, bonds, mutual funds, ETFs, etc. can be done through a “Transfer on Death” (TOD) designation.

Individuals who own IRAs (traditional and/or Roth) and individual life insurance policies should make sure that beneficiary designations have been made and are current.

Other Considerations and Suggestions for an Estate Plan

1. Are guardians needed for minor children?
2. Is there a letter of instructions? This is a private, informal way of guiding family or an executor in settling one’s estate.
3. Does one want to leave an “ethical will”? An ethical will is a spiritual legacy to future generations.

Employees who need to have their estate plan documents drafted or reviewed, including wills, trusts, living wills, and power of attorney should contact an estate attorney licensed to practice law in the employee’s state of residence. If an employee moves, perhaps after retiring from federal service to a different state – will these documents still be valid? These documents should be at least reviewed by an estate attorney in the employee’s new resident state. The following is an estate planning “quick list” to assist employees in obtaining a proper estate plan:

Estate Planning “Quick List”*

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Mid-Career Estate Planning