Six estate planning tips for federal employees, including wills, POAs, and more…
Edward A. Zurndorfer
Over the last three years, the COVID-19 pandemic has highlighted the importance for all individuals – young, middle aged and retired – to address their estate planning needs. In particular, having a will or a living trust, financial powers of attorney, health care powers of attorney, living wills and beneficiary designations. For younger families, the formality of designating guardians for minor children in the event both parents die or are incapacitated.
Interestingly, there has been recently a significant increase in the younger generation for drafting their wills. Perhaps the main driving force behind this push to get a will has been the realization how extraordinarily uncertain the future can be. However, even with the surge of estate planning over the last two years (due primarily to the COVID-19 pandemic), according to LegalZoom.com financial professionals estimate that between 50 and 60 percent of Americans have not completed a will. The lack of completed wills is a shocking statistic because individuals are dying every day, leaving family and loved ones with no information about their assets or financial obligations. According to a survey by OnePoll for Brookdate Senior Living, 30 percent of Americans do not know whether their parents have a will, and 40 percent do not know what is in their parents’ wills. The survey points a bleak picture that most Americans are not planning and laying a solid financial future for their family and loved ones.
This column presents some of the more important parts to an estate plan. These parts include wills, living wills and advance health care directives, powers of attorney, beneficiary designations, guardianship of minor children and final arrangements.
The last will and testament is a document which instructs the actions or rights of others over the decedent’s property. Wills may be made without using the services of an attorney but must follow particular rules in order to avoid being declared void.
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Some individuals avoid making a will because of the fear of facing and discussing death. Another possible reason for not drafting a will among some individuals may be the anxiety of the cost to create a will. Whatever the reason, a will is an essential part of an estate plan. At a minimum, individuals should have a handwritten will (also known as a holographic will). A holographic will can be constructed without the services of an estate attorney. However, the legality of a holographic will requires four attributes in order to be a valid will. First, the holographic will needs to be constructed in the handwriting of the person writing the will (the “testator”). Second, the will must indicate the testator’s intent to write the will. Third, there should be a description of any property and identification of beneficiaries. Lastly, the will needs to include the testator’s signature.
Most importantly, having a properly drawn up will (either prepared by an estate attorney or a valid holographic will), at a minimum should help family and loved ones avoid a costly and lengthy probate process.
Living Will and Advance Health Care Directives
A living will and advance health care directive documents will assist in the individual giving instructions and wishes in the event he or she is unable to voice medical decisions for himself or herself. This is often the case with a terminal illness or sudden incapacity caused by an accident and/or head injury. Many individuals feel strongly about not wanting to be kept alive on costly life support if there is no chance of recovering. Some individuals are of the opinion that this decision to be left on life support should not be decided by others and would prefer to be kept on life support and cared for even in a comatose state.
Whatever an individual’s personal decision with regard to life support, a living will ensures that the individual’s wishes will be carried out.
Powers of Attorney
A financial power of attorney is also known as a “durable” power of attorney. An individual – the “principal” – appoints an “agent” to have power over the principal’s finances in the event the principal is unable to make financial decisions for himself or herself. The agent could be a spouse, relative, companion, friend or attorney. The financial power of attorney allows the agent to pay bills, sign checks and make financial decisions on behalf of the principal. If an individual has not selected a financial power of attorney and the individual becomes unable to make financial decisions or pay bills, then a court hearing will likely be held in order to select such a person to perform these financial tasks on behalf of the individual. This could be quite costly.
A medical power of attorney has a very specific and specialized power granted to him or her. The person designated as the medical power of attorney makes medical decisions on behalf of the principal who is unable to make those medical decisions. The medical power of attorney will also be responsible for carrying out the principal’s previously written or verbal medical wishes and instructions. It is important for the principal to speak to the agent in order to make sure that the agent is up to the task and willing to take on this responsibility before appointing them.
A beneficiary is the person or entity that receives the assets of a benefactor after the benefactor dies. For federal employees, a beneficiary can be named for the following federal employee financial assets: (1) CSRS pension – remaining employee contributions via Form SF 2808; (2) FERS pension – remaining employee contributions via Form SF 3102; (3) TSP via “My Account” online portal at TSP.gov; (4) FEGLI life insurance or individual life insurance via SF-2823; (5) traditional IRAs and Roth IRAs; (6) Bank accounts such as checking, savings, certificates of deposit (in the form of “payable on death”, or POD); and (7) Brokerage accounts (in the form of ‘ transfers on death”, or TOD). It is important to name not only primary beneficiaries but also contingent beneficiaries. It is also recommended that employees choose and make a formal record of their designated beneficiaries and contingent beneficiaries. Doing so will save time, expense and possibly financial hardship to loved ones.
Guardianship of Minor Children
While the odds are very slim, the fact is that there is a chance that a young and likely married individual may not be around to raise his or her minor children consider. This is a difficult thought to consider; however, it will give this young individual peace of mind to know that in the unlikely event this situation occurs and a guardian has been named as the guardian of the minor children, that the individual’s children will be safe, cared for, and with a person or persons the individual trusts.
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It is assumed by the courts that in the event of the untimely death of one parent, that the surviving parent will take custody of the child or children. This is the case even if the deceased parent is estranged from the surviving parent. It is therefore very important to clearly designate who should take custody of minor children in the event both parents are not able to raise them.
To ease the process for an individual’s loved ones after the individual dies, it is wise to pre-plan one’s final arrangements. For many individuals, this is more difficult than any other aspect of estate planning. But by not planning for this in advance may result in an individual’s final wishes not being carried out. Everything regarding final arrangements should be written, signed by the individual and notarized. For example, if the individual wants to be cremated or buried, or encrypted, and/or if the individual would like to donate organs (or not) then all wishes should clearly be stated in a written document that is notarized before a witness.
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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.