Estate Planning for Federal Employees
All federal employees have an estate. Included are assets like real estate, life insurance policies, a Thrift Savings Plan (TSP), IRA funds, non-retirement brokerage accounts, checking and savings accounts, and personal items. Planning for what happens after death is only one part of estate planning. Additionally, one should plan for the potential of incapacity. This planning could be for something like managing financial affairs while incapacitated due to an accident or prolonged illness. For federal employees who do not yet have an estate plan, one must first inventory all current assets. Employees should make sure to detail wishes for inheritance and who should control their finances. And federal employees should fill out any and all beneficiary forms they can as well as confirm that the forms are current and submitted to the proper department. Here are the most common beneficiary forms that federal employees can utilize.
Solely Owned Assets
Individual assets are at the greatest risk of failing to go to preferred recipients if a legal will or living trust does not exist. Surviving family members will need to depend on “intestate” laws of the deceased’s lawful state residence to determine how the solely owned assets will be allocated. Additionally, any estate or inheritance taxes or other expenses necessary to settle the estate will need to be determined as well as which assets will be used to fund it.
Jointly Owned Assets
Certain financial assets are designated as jointly owned with rights of survivorship (JOWROS), or some married couples are joint tenants with rights of survivorship (JTWROS). When one of the JOWROS or JTWROS owners dies, in most states the surviving owner will only need to provide a death certificate to the financial institution with the assets to reclassify them as solely owned. These assets can also be held as tenants in common, meaning the deceased owner’s portion will be passed to beneficiaries according to the legal will or state laws of the deceased’s residence.
Assets in Which a Beneficiary Can Be Designated
Another way to efficiently transfer assets to one’s beneficiaries is to name a specific individual or institution. This also avoids probate for the distribution of one’s assets. The assets owned by federal employees in which beneficiary forms can be submitted include: Unpaid Compensation of Deceased Civilian Employee, Federal Employee Group Life Insurance Program, Thrift Savings Plan, and Employee CSRS and FERS contributions. Beneficiaries can also be made for federal employee assets such as traditional and/or Roth Individual Retirement Accounts (IRAs), individually held life Insurance policies, checking and savings accounts through a Payable on Death (POD) designation, US Savings Bonds through POD designations, and brokerage investment accounts through a Transfer on Death (TOD) designation.
Estate Planning Documents
A will is a legal document identifying any beneficiaries, guardians for minor children, and an executor of the estate as well as strategy to saving taxes and controlling the allocation of assets. A living trust, or a revocable living trust, gives full control of assets to the trust creator during his or her lifetime with assets determined privately after the creator’s death. The revocable trust means the grantor can modify its terms or cancel the trust altogether. Additionally, the trustee can also enter an agreement with a financial institution to keep records, distribute money, or make investment decisions. All earnings, gains, or losses on the trust assets must be reported on the grantor’s personal income tax returns. The living trust should be combined with a pour-over will, instructing any assets not already in the trust at the time of the grantor’s death be “poured-over” into the trust by the executor of the estate, and resolved by the trustee as directed in the trust agreement. Lastly, a living will and advance health care directive puts in place any wishes while incapacitated and end-of-life details.
At Federal Educators, we can help you better understand your estate planning and federal retirement benefits. Give us a call and request your free analysis at 866-226-8160.
