Estate Planning Basics for Military Members

One of the most common questions I get from military members related to estate planning is along the lines of “but I already have a will from the JAG – what else is there to do?” Estate Planning isn’t just for the independently wealthy. It’s for anyone who is loved and wishes to make the inevitable path of loss and grief easier for loved ones—including protecting underage children. 

It can also feel daunting, but we’ve broken it down for you into the basics. Because everyone’s circumstances differ, you may want to discuss the best way to apply these steps with the JAG or estate attorney. None of the following is considered legal advice and is for your education only. Consider the steps to put your estate plan in order.  

What is Estate Planning?

Estate planning is the process of establishing and maintaining a plan that outlines who will receive your assets after you pass away. There are many important documents required, some legal and some that are simply for the benefit of your loved ones. It’s a stressful time when a family member dies—having a solid estate plan can go a long way toward easing burdens.

An estate plan also helps when an individual is incapacitated, too. Moreover, estate planning includes not only your financial assets but also other items and general last wishes.

Why Is Estate Planning Important?

Estate planning is important because it puts in writing how your assets will transfer after your death. Common documents and products include a will, trust, insurance policies, and healthcare-related forms. Estate planning is simple for those with relatively few assets, but it quickly turns complex for high-net-worth individuals and families. Creating an estate plan with an experienced financial planner and estate attorney is thus important to avoid headaches after you pass away. New laws, regulations, and financial products make estate planning a complex area of long-term planning.

Assets Considered Part of an Estate

You might wonder what is included under the term “estate.” Just about everything you own. Writing down a list of all your assets is a good first step toward crafting a basic estate plan. Note everything, including retirement and investment accounts like your TSP, properties, cars, jewelry, collectibles, cash, and insurance policies. The list goes on! Knowing what you own along with the total value of your assets helps a financial planner strategize the optimal estate plan for you.

What’s ideal about financial accounts, though, is that you can generally name a beneficiary to whom a specific account will go upon your passing. That makes executing an estate plan simpler. Other non-financial assets pass through to your heirs based on how your will is constructed.

1. Inventory and estimate the value of your stuff

You may think you don’t have enough to justify estate planning, but once you start looking around, you might be surprised by all the tangible and intangible assets you have.

The tangible assets in an estate may include:

Homes, land or other real estate

Vehicles, including cars, motorcycles or boats

Collectibles such as coins, art, antiques or trading cards

Other personal possessions

The intangible assets in an estate may include:

Checking and savings accounts and certificates of deposit

Stocks, bonds and mutual funds

Life insurance policies

Retirement plans such as workplace 401(k) plans and individual retirement accounts

Health savings accounts

Ownership in a business

Once you’ve listed your tangible and intangible possessions, you need to estimate their total value. Consider the following:

Home values: If you don’t have a recent appraisal, write down a ballpark figure of your home’s value using online tools such as Zillow, Trulia or Realtor.com. 

Bank and investment totals: Statements from your financial accounts

Sentimental possessions and family heirlooms

2. Account for your family’s future

What future needs will your family members have in your absence? Consider income needs, medical care, and who will raise your kids if you’re not there.

Do you have enough life insurance beyond SGLI? If your assets cannot provide for the care and raising of your children, including future educational needs, consider including term life insurance to bridge the gap for those who depend on you.

Name a guardian for your children — and a backup guardian, just in case. This can help sidestep costly family court fights that could drain your estate’s assets.

Document your wishes for your children’s care. Don’t presume that certain family members will be there or that they share your child-rearing ideas and goals. Don’t assume a judge will abide by your wishes if the issue goes to court.

3. Establish your directives

A complete estate plan includes necessary legal directives or instructions. If your estate is small and your wishes are simple, the JAG documents may generally suit your needs. These programs typically account for IRS and state-specific requirements. However, with increasingly complex estate needs like blended families, special-needs considerations, multiple properties across various states, or higher net worth estates, there is often a need for an estate planning attorney to go beyond the basics that JAGs usually cover. 

These directives include most or all the following:  

1. Last Will and Testament: This is the most well-known document in estate planning. Most people know they should have a will, but the majority of Americans do not have one. According to a 2020 Gallup survey, just 45% of U.S. adults reported they had a will. A will is the foundation of an estate plan. The document outlines to whom your assets will go upon your death. Assets mentioned in a will still must go through the probate process, however. A will can be inexpensive and simple to make online, but they are often costly and elaborate for high-net-worth families. Moreover, a will is not a ‘set it and forget it’ estate planning document – it must be maintained just as a financial plan is updated as life events happen. Naming an executor (as well as backup names) of an estate is a critical component of your last will and testament, too. Finally, individuals should be aware that the will is made public through the probate process, so be thoughtful about what is included in the document.
2. A durable financial Power of Attorney (POA) allows someone else to manage your financial affairs if you’re medically unable to do so as it is “durable” even through your incapacity. This includes paying your bills and taxes and accessing and managing your assets. A limited power of attorney can be helpful if the idea of turning over everything to someone else concerns you. Be careful about who you give power of attorney. They may have your financial well-being — and even your life — in their hands. 
3. Advanced Healthcare Directive (AHCD), Medical Care Directive, or Living Will: An AHCD outlines what healthcare-related actions should be taken if you are unable to make decisions. You can also give a trusted person medical power of attorney to make medical decisions if you are unable to do so (in a coma for example).
4. HIPAA Authorization: This document can save a lot of time and anxiety since it gives consent to share your medical records with third parties.
5. Trust documents: Trusts allow you (the Grantor) to give someone else (a Trustee) control over how assets are controlled and held for the benefit of a third party (a Beneficiary). When constructed properly, assets in a trust avoid both probate and estate tax liability. A living trust, sometimes called a revocable trust, enables you to designate portions of your estate toward certain things while you’re alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing the court process (probate) that may otherwise distribute your property. Those with minor children may especially want to consider a trust to provide financial protection for them so they don’t otherwise inherit large sums of money at age 18.
6. Beneficiary forms: You might be overwhelmed by all that goes into making and maintaining an estate plan. One thing you can do today that is quick and easy is complete beneficiary designation forms on all your financial accounts. IRAs, 401(k)s like the TSP, and brokerage accounts often offer short forms to accomplish this estate-planning task. Financial accounts with a named beneficiary efficiently transfer upon your passing. Bank accounts have a “transfer on death” option as well. Don’t leave any beneficiary sections blank. In that case, when an account goes through probate, it may be distributed based on the state’s rules for who gets the property. Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
7. Guardianship: More important than money is what happens with your children and other dependents. No estate plan is complete without a directive on who will care for your loved ones when you pass away. Guardianship is commonly outlined in a will.
8. Letter of Intent. A letter of intent is a document left to your executor or a beneficiary. The purpose is to define what you want to be done with a particular asset after your death or incapacitation. Some letters of intent also provide funeral details or other special requests. While not legally binding, letters of intent can inform a probate judge of your wishes if the will is deemed invalid or more importantly, give guidance to your loved ones with more information about your wishes. 

Estate Taxes

Although this generally doesn’t apply to most military families, avoiding estate tax is among the primary goals of crafting and strategizing an estate plan for wealthy individuals. For these people with a net worth above the federal estate tax exemption, the so-called “death tax” can run into the millions of dollars. Ultimately, you want to ensure your heirs receive as much of your assets as possible. A savvy financial advisor helps individuals and couples create an optimal estate plan—that includes taking tax minimization actions years in advance of retirement.

The top federal estate tax rate is 40% for 2023. The estate tax exemption amount, also called the exclusion, is $12.92 million per individual and $25.84 million per couple. That means if the cumulative value of your assets exceeds those amounts, you could face substantial estate tax liability. The good news is that there are strategies you can act enact to reduce what you might owe. In general, the higher your net worth, the more value a financial advisor knowledgeable in estate planning brings.

Another key amount is the annual gift tax exclusion, which is $17,000 per donor, per donee ($33,000 per couple). For example, I can give anyone $17K and my spouse could give that same person another $17K.  This is commonly misunderstood that if you want to give (or receive) an amount above that annual exclusion amount that you have to pay tax. That is not correct! There is just some paperwork (IRS form 709) that needs to be filled out come tax-time that reports using a portion of your lifetime exclusion (the $12.92M figure earlier) for the gift. Thus, no gift tax is owed unless you use all of that up. 

Get Started Today

Everyone needs an estate plan even if the value of your assets is significantly below the federal estate tax exemption. If so, you can simply visit the JAG to update or create a plan. In addition, any number of online sites like Trust and Will offer ways to draft and formalize your estate plan document. If you get out of active duty and work in a civilian company, many employers offer estate planning services in their benefits packages—check with your Human Resources department at work to see if that’s the case for you.

But here’s the thing: While your net worth might be well under the exclusion amount today, decades from now that might not be the case. Consider that compounding investment returns, business growth, and even tweaks to the federal tax code might change your situation. Getting started today with certain estate minimization techniques can prepare you for an easier tomorrow.

Conclusion

Taking time today to craft an estate plan helps ease your loved ones’ burdens after you pass away. A solid estate plan outlines who will receive what after you die and this important piece of financial planning includes directives on what actions to take if you become unable to act on your own. Whether you should hire an attorney or an estate planning professional to help you create your estate plan depends on your situation. 

If you have doubts about the process, consulting an advisor to help you take the best steps for your situation might be worthwhile. The advisors in MFAA can help you determine whether this is a process you can tackle yourself or one for which you should hire a professional. We’re here to help!

 

Social Security – The Basics

You pay your payroll taxes every month but unless you’re close to retirement, you probably don’t give Social Security much thought.  Maybe you think about it once a year when the news updates when the Social Security trust fund will run out of money.  Maybe you think I don’t need to worry about it because there won’t be any money left for me.  If you’re interested in that, check out this other MFAA blog post on Social Security solvency.

This article will explain the basics of Social Security, the claiming decision you’ll need to eventually make, and why understanding how it works will have a BIG impact on how much money you’ll receive.

Introduction

Social Security is a critical safety net providing financial support to retirees, disabled individuals, and survivors. In this blog post, we delve into the fundamentals of Social Security, focusing primarily on the retirement aspects to provide you with a understanding of how this program works.

Eligibility and Coverage

Determining Eligibility

Social Security benefits are designed to provide crucial financial support to individuals who have paid into the system through payroll taxes. Eligibility for various benefits is determined by a combination of factors, including your work history, age, and disability status. Here are the key components of eligibility in more detail:

1. Work Requirements

To be eligible for Social Security benefits, you typically need to have earned enough “credits” by working and paying Social Security taxes. Credits are earned based on your total yearly wages or self-employment income. In 2023, you earn one credit for every $1,470 in earnings, up to a maximum of four credits per year. The exact number of credits you need to qualify for benefits depends on your age and the type of benefit you’re seeking.  Generally, you need 40 credits (equivalent to about 10 years of work) to qualify for retirement benefits on your own record.

2. Age Requirements

You can start receiving Social Security retirement benefits between ages 62 and 70.  If you start receiving retirement benefits before your Full Retirement Age (FRA) your monthly benefit amount will be reduced.  Waiting until your Full Retire Age allows you to receive your full benefit amount.  You can also increase your benefit if you wait beyond your FRA up to age 70.  Benefits do not increase beyond age 70.  We’ll discuss more about this in the benefits section.

Coverage Details

Social Security covers several types of benefits, each serving a specific purpose.  They are retirement, disability, and survivor benefits, as well as Medicare.  Disability and Medicare are important aspects, but beyond the scope of this article.

Retirement Benefits

Retirement benefits are the most well-known aspect of Social Security. These benefits provide financial support to individuals who have reached their Full Retirement Age and have accumulated enough credits. You have the option to start receiving retirement benefits as early as age 62, but claiming later can result in higher monthly payments.

Survivor Benefits

Survivor benefits offer financial support to the surviving spouses, children, and dependents of a deceased worker. These benefits provide a lifeline to families facing the loss of a primary wage earner. Eligibility and benefit amounts vary based on your relationship to the deceased and their work history.

Navigating Eligibility and Applying for Benefits

Understanding your eligibility and the specific requirements for each type of benefit is crucial when planning your financial future. The Social Security Administration provides detailed information, resources, and online tools to help you determine your eligibility.  Go to SSA.gov.

[Note:  While they used to send annual statements to you, you now need to establish an account to get your Social Security statement.  If you haven’t established an account or checked your statement recently, I encourage you to do it.  You want to make sure your annual income is correct on the statement.  It’ll also project your benefits based on your work history]

The process of applying for Social Security benefits can be complex.  Meeting eligibility criteria is just the first step. Depending on your situation, you may need to provide various documents, medical records, and other information to support your claim.

Social Security Benefits Explained

Retirement Benefits

Retirement benefits are a cornerstone of the Social Security program, providing financial support to individuals as they transition from the workforce into retirement. These benefits are designed to replace a portion of your pre-retirement income.  This offers a measure of financial security and for many THE only income they have in retirement.

The other key fact about Social Security benefits is they are indexed to inflation.

Full Retirement Age (FRA): Your FRA is the age at which you can receive your full benefit amount without any reduction. Your Full Retirement Age (FRA) is set by Congress in Social Security law.  For those born between 1948 and 1954, it is 66.  For those born in 1960 or later, it’s 67.  For those born between 1955 and 1959, its between 66 and 67.  Claiming benefits before your FRA results in a permanent reduction in your monthly benefit, while delaying benefits past your FRA can lead to higher monthly payments.

Early vs. Delayed Retirement: You have the option to claim retirement benefits as early as age 62. However, if you choose to do so, your monthly benefit will be permanently reduced. On the other hand, if you delay claiming benefits beyond your FRA, your benefit amount increases by 8% per year for each year of delay, up to a maximum of 70 years old. This delayed retirement credit incentivizes individuals to continue working and delay claiming, leading to higher monthly payments in the long run.

Example

Your FRA is 67.  You expect your benefit to be $3000 per month.

If you claim at 62, your benefit will be reduced 30% for a monthly benefit of $2100.
If you claim at 65, your benefit will be reduced 13.3% for a monthly benefit of ~$2600.
Wait to claim at 70 and your benefit will be increased 24% for a monthly benefit of $3720.

Calculating Retirement Benefits

The Social Security Administration calculates your retirement benefit based on your average indexed monthly earnings over your 35 highest-earning years. The calculation considers inflation and wage growth over the years. The formula considers these earnings, applying different percentages to portions of your income to arrive at your Primary Insurance Amount (PIA). Your PIA represents the benefit you’ll receive if you claim at your Full Retirement Age.

Understanding how your claiming age and earnings history interact is crucial for maximizing your retirement benefits. It’s important to note that your monthly benefit can also be affected by factors such as working while receiving benefits before your FRA and taxation of benefits based on your total income.  If you claim Social Security before your FRA, your benefit payment will be temporarily reduced if you earn more than the earnings limit. You can work after Full Retirement Age and earn as much as you’d like without reducing your benefit payment.

1. Social Security and Retirement Planning

Integrating Social Security into your retirement planning is crucial.  Even if you don’t expect to rely on Social Security, it can help you preserve other assets that you can use or gift to your heirs or charity.  When you claim benefits (as seen in the example above) can significantly impact how much you, and if you’re married your spouse, will receive.  Consider factors like your life expectancy, financial needs, and other sources of retirement income.  [We’ll look at claiming strategies in our case study in part 3 of this series.]

Tax Implications: Depending on your total income, a portion of your Social Security benefits might be subject to federal income tax. Understanding these tax implications can help you better plan for your retirement income.  The income limits for benefit taxation are low so if you have a military or other pension it is highly likely your Social Security benefits will be taxed.

Future Challenges

You probably have seen the yearly headlines that come out when they update the numbers for the Old-Age and Survivors Insurance (Social Security) Trust Fund.  It’s now projected to run out of money in 2033.  At which time Social Security will only be able to pay 77% of the project benefits from the money they get from the monthly payroll taxes.

While there have been reports that Congress has begun to work on this, so far there haven’t been any breakthroughs.  I expect something will get done, but the bad thing is by waiting the range of options decreases and the changes (increase in taxes or working ages) have to be bigger.  Again, for full treatment of this, check out this article.

Conclusion

Social Security is a cornerstone of financial security for millions of Americans. By understanding its various benefits, eligibility criteria, and planning strategies, you can make informed decisions to maximize your benefits and ensure a more secure retirement.

 

 

Selecting a Financial Advisor

If you’re on this website, there’s a good chance you are looking for someone to help you with a financial question or concern.  Perhaps you’re worried about one thing in particular, want an assessment of your current financial situation, want to know if you’re on track to retire (or meet some other financial goal), or something else. In any case, something/ someone gave you the idea to consider professional financial advice.

But where in the world do you start?! 

Before we discuss the details you might encounter in your search, let’s consider some basic terms and concepts.

Types of Financial Advice Professionals

Financial Advisor – There is no standard definition for this job title. Generally speaking, a financial advisor is licensed to provide investment advice, which means they can recommend how to invest your money.  

Financial counselors and coaches – Counselors and coaches focus on helping clients tackle a particular area of their financial situation (budget, debt, learning how to save, etc.).  Coaches and counselors are not licensed to provide investment advice.  Note that anyone can call themselves a financial counselor or coach (social media is full of people who call themselves financial coaches and counselors!).  

Brokers—Brokers are sales professionals who sell a financial product or security. For example, stock brokers sell securities like stocks, bonds, mutual funds, etc. Insurance brokers sell insurance products like life insurance and annuities. Sales professionals earn a a commission when they sell something. They are not required to meet a fiduciary standard but must meet the standards of their licenses and applicable laws. (Fiduciary means that you have to work in the client’s best interest).

There are tons of other financial professionals, but when it comes to financial advice, you will encounter these most common types of financial professionals.  

How Clients Pay for Financial Advice

Now that we have a basic idea of the type of financial professionals you might encounter searching for advice let’s talk about how financial professionals get paid.  Some financial professionals volunteer some portion of their time to provide pro-bono advice to clients who could not otherwise afford financial advice.  Aside from volunteer work…

Every. Financial. Professional. Gets. Paid. No exceptions. 

Financial professionals receive compensation whether the client pays them directly or not. Simply speaking, there are three common types of compensation for financial professionals:

1. Fee-only – collect a fee from the client; cannot be compensated for advice from any other source besides the client
2. Commission-based – earn a commission from selling products; 
3. Fee-based – collect a fee from the client and can earn commissions from selling products

Financial services companies pay commissions to salespeople who sell products like mutual funds, insurance, annuities, etc.

Some financial professionals can only collect fees from their clients. They cannot collect commissions for product sales. These professionals are called “fee-only.” A fee-only professional may collect money directly from the client or bill an investment account they are managing for the client. 

Some financial professionals are only paid when they sell a product and receive a commission. The professional does not charge the client for services. Instead, the product the client purchases incorporates one or more charges. The sales professional must provide a sales document (prospectus, etc.) that outlines the costs.

Some financial professionals are paid by collecting a fee from the client for some of their work and may also earn a commission when they sell a product to the client. These advisors sometimes use the term “fee-based.”

Fee-based vs. fee-only – it’s confusing, right?  Bottomline – fee-only advisors are paid only by their clients for client service.  Fee-based advisors may also sell products and earn a commission.

Common Services Financial Advisors Offer

Now, let’s review common ways financial advisors work with clients.

Ongoing Advice – Your financial advisor provides a given level of service for as long as you both choose to continue working together. Advisors will either charge an “asset under management” (AUM) fee or a monthly/ quarterly fee.  (AUM fees mean the advisor is managing your investments for you and is (usually) charging a percent of the assets they manage.)  You must agree on the level of service and the fee upfront.

Project-based: You hire a financial advisor to provide a service with a clear start and end point. For example, you might want a financial advisor to review your investments and recommend changes. You might also want a comprehensive financial plan with recommendations you will implement independently. You agree on the project scope and cost upfront.  

Hourly-based advice – You hire a financial advisor to spend time with you to address a specific problem. 

Specializations and Certifications

We noted above that there is no standard definition for a financial advisor. However, not all financial advisors are the same. Some have specialized expertise in a particular area or for a specific type of client, and some hold credentials.  

The Military Financial Advisors Association is an excellent example of a group of financial advisors with specialized expertise for a specific type of client – military personnel.  We’ve all experienced the military lifestyle and have firsthand knowledge and experience with the benefits. 

Other financial advisors specialize in working with small business owners, employees who earn a lot of equity compensation, women, young families, teachers, etc. If you can imagine a group of people with unique financial considerations, an advisor somewhere probably specializes in working with those clients. There can be additional value in working with someone who understands the nuances of your situation.

Some advisors hold credentials. Credentials can indicate an area of specialization and a commitment to upholding a given standard.  The CERTIFIED FINANCIAL PLANNER™  designation is widely considered the industry’s “gold standard” credential for financial advisors.  While the term “financial advisor” is not defined, the CFP Board governs using the title CERTIFIED FINANCIAL PLANNER™ (also known as a CFP® Professional).  A CFP® professional has met specific academic requirements, passed a rigorous exam, met an experience requirement, and signed an ethics declaration before being awarded the marks.  A CFP® professional must always act as a fiduciary to their client.  (A fiduciary is someone who must always put the best interests of the client first).

There are a plethora of other credentials in the industry today. While credentials are sometimes a positive indicator that the advisor is committed to professional development, a given set of practice standards, and specialization, they aren’t an endorsement of the advisor by any organization. You must do your homework. 

How to Vet An Advisor

Let’s assume you’ve decided to work with a financial advisor, that you’ve decided whether you want a fee-only, fee-based, or commission-based advisor, and that you’ve found a group of advisors with the type of expertise you prefer. It’s time to vet the advisor.

First, review the US Securities Exchange Commission’s (SEC) Investment Advisor Public Disclosure website. Search for the names of the financial advisors you are considering.  The website provides an overview of industry experience, where they worked, which licensing exams they’ve passed, and whether there is any disciplinary history/ action.  

Then, schedule an interview/ consultation with the financial advisors you are still considering.  During the meeting, consider:

• Do you like this person?  Does your spouse like this person?
• Can they explain their services, processes, and fees in a way you understand?
• Are their services a fit for your situation? 
• Can you afford their fees?
• Can you commit to the process and the timeline?
• Are you willing to share the type of information the financial advisor will request?
• Does this person have the knowledge and expertise you hope to find?

If you answer yes to all of these questions about more than one financial advisor you’ve interviewed, then compare how each financial advisor fits your needs and personality.

Selecting the Advisor

Once you’ve selected your preferred advisor, let them know you want to proceed. And don’t forget to let the advisors you didn’t pick know that you’ve chosen another advisor.  It’s absolutely ok.  It’s part of the job.  So let everyone know when you’ve made your decision. 

Then, get ready! Your new advisor will give you a ton of homework to get started. And, hopefully, it’s the beginning of a great relationship with someone you like and trust and who can provide meaningful insight to you and your family.

MFAA has numerous advisors you can talk to to find your perfect match.  You can find them here.

Conducting a Home and Auto Insurance Review

Many consumers are shocked when they receive their annual insurance bills.  Rates for auto and homeowners’ insurance are climbing significantly.  Auto rates increasing 20% isn’t uncommon and homeowners probably isn’t much less especially if you live in an area that see extreme weather events.

So why is this happening?

The biggest driver of this is the increase in prices of cars and homes and the costs to repair them.  It costs much more to repair newer cars.  I heard an example recently that said replacing a bumper used to cost a few hundred dollars.  Now with all the cameras and tech integrated into cars it’s several thousand dollars.  For home insurers, costs associated with extreme weather events have been increasing.  Couple that with rising home prices and the demand for housing and you’ve got a recipe for higher costs.

So why is this happening now?

Insurance is a regulated industry.  Each state insurance commissioner sets rates based on the requests from companies.  This means it operates on a lag.  During COVID, claims dropped because people weren’t driving as much.  The insurers made more money.  As the pandemic eased, claims increased to higher levels than pre-pandemic.  This lowered insurance company profitability.  They have now gotten the insurance commissioners to increase rates and as your individual policy comes up for renewal it’ll probably mean higher rates for you.

What can you do?

You could consider shopping for another company, but this is typically not an individual company thing.  Rates have increased nearly across the board.  It doesn’t mean you shouldn’t compare.  Just don’t expect huge savings.

Review Your Coverage

You can also review your coverages.  This is important to do at least every few years.  You can download the 2-page checklist (link), but here are a few things to consider.

Homeowners Insurance & Personal Property

Has your home increased in value? 

There are nuances in the insurance rules that require you policy to cover < 80% of the value.  If your policy doesn’t, you could only get partial reimbursement for any claims.

What’s your deductible?  Can you raise it?

I’m a big fan of higher deductibles.  They can reduce your premiums because you’ll be less likely to file a small claim.  If you’ve got a proper emergency fund, this is something you could assess to determine if it’s right for you.

Have you made big improvements to your home? 

If you’ve finished the basement, built an addition, or added a pool, you’ll want to make sure these improvements are fully captured in your policy.

Do you have personal property (jewelry, electronics, antiques) that has value beyond the standard policy limit?

If so you may need to add a specific policy provision to cover it.

Auto Policy

Are your collision and comprehensive limits adequate based on the value of the vehicle?

It used to be that once cars reached a certain age, you could consider not having comprehensive coverage because they weren’t worth very much.  With the increase in the value of even very old cars, this probably isn’t as much the case any more.  It can still be a good thing to assess periodically.

Can you raise your deductible?

Do you have kids on the policy?

They may be able to qualify for good student discounts.  If they are only a part-time driver because they are away at college without their own car, they may get a reduced rate.

Umbrella Insurance

Once you amassed a certain level of wealth, it can be important to consider adding an umbrella policy.  Umbrella policies provide protection over and above your homeowners’ and auto policies.  Umbrella policies are relatively cheap for the amount of coverage you can get.

Discounts

If you’re talking to your insurance carrier about your policy, ask them about discounts you might qualify for.  There is the standard bundling discount for multiple policies, but there are many others from having home alarms to not having any claims for several years to multiple car discounts.

Wrap Up

With the increase in the cost of insurance, now could be a great time to review your policies to see if there is a way to save some money.  While I’ve hit the highlights, this checklist (link) has some other information you should consider.

Want to talk about your insurance or any other financial topics?  Contact a MFAA member today.  You can find the list of MFAA Advisors here.

Special Needs Planning Considerations:

ABLE Accounts, Special Needs Trusts and the Survivor Benefit Plan

Military retiree benefits provide additional planning opportunities and considerations for families of special needs children and adults. In every instance, I recommend working with both an estate planning attorney with experience in special needs planning and an experienced military financial advisor. Navigating Tricare coverage and survivor benefits plan options available for special needs beneficiaries make the planning process more important and more complex. Additionally, each state will have different public benefits that may be available, so where you live or plan to live adds an additional element to consider. 

One of the major goals of special needs planning is to avoid disruption of eligibility for certain means-tested government benefits for the special needs individual. This is particularly important as the parents age and when they pass away. Two different tools that can be used to preserve eligibility for means-tested benefits include Special Needs Trusts and ABLE accounts. 

Special Needs Trusts (SNTs) and Achieving a Better Life Experience (ABLE) accounts are financial management tools designed to assist individuals with disabilities and their families in managing resources and securing their financial future. Here’s an overview of each:

Special Needs Trusts (SNTs):

• • Purpose: SNTs are legal arrangements created to hold and manage assets for the benefit of a person with a disability. The trust is designed to supplement government assistance programs like Medicaid and Supplemental Security Income (SSI) without jeopardizing eligibility.
  • Types:
    • Third-Party SNT: Established by someone other than the person with a disability, often a family member.
    • First-Party SNT (or Self-Settled SNT): Created with the disabled individual’s assets, often from a legal settlement or inheritance. This type of trust is important for military members and retirees who would like to name their special needs child as beneficiary for Survivor Benefit Plan benefits.
  • Management: A trustee is appointed to manage the trust and make decisions about the use of funds for the benefit of the individual with special needs.

I cannot stress the importance of choosing an appropriate trustee enough. Often a family member is chosen to serve as the trustee of the SNT. While this can be a good thing, it is important to make sure that the trustee is fully aware of their responsibilities and equipped to handle them. Trustees have a fiduciary obligation to the beneficiary of the trust. This means they are legally obligated to act on behalf of the beneficiary’s interest. This includes understanding the coordination of benefits and how best to meet the needs of the beneficiary, filing an annual tax return and providing an annual accounting report. Placing someone in that position who is not aware of or equipped to fulfill these obligations leads to negative outcomes for everyone involved. If you aren’t sure who to name as the trustee, there are many organizations around the country who will serve as professional trustees on special needs trusts. 

Once a first-party special needs trust is established, the beneficiary may not be changed. However, beneficiaries of third-party special needs trusts may be subject to change depending on the language in the trust document.

While beneficiaries are living, the funds within a first-party trust protect the beneficiary’s ability to qualify for means tested public benefits. Once the beneficiary passes away, the funds within the trust are subject to state Medicaid reimbursement. A key element to remember while developing your planning is that third-party special needs trusts are not subject to state Medicaid reimbursement. 

• Benefits: SNTs provide additional options for providing for the future needs of a family with disabilities that will protect their eligibility for certain means tested government benefits, provide a pool of money to supplement those benefits and allow military retirees to incorporate SBP into their planning. 
  • Protects eligibility for government benefits.
  • Provides for supplemental needs not covered by public assistance.
  • Enables family members to contribute to the individual’s financial well-being. Military members and retirees may elect Survivor Benefit Plan (SBP) benefits for their children with disabilities. This may be done under the spouse-child option when the child has a long-term disability or as a child only option. The coverage applies even when the beneficiary has aged into adulthood. A self-funded special needs trust can be used to ensure the money doesn’t put other government benefits that the child may be using at risk. However, SBP payments would need to be irrevocably assigned to the self-funded special needs trust. You will need to coordinate between your attorney and DFAS to make sure the benefits are correctly assigned.
  • First-party special needs trusts and third-party special needs trusts are not subject to annual contribution limits. There are no limits on the total amount of money that can be held in either type of account.

Achieving a Better Life Experience (ABLE) Accounts:

• • • Purpose: ABLE accounts are tax-advantaged savings accounts for individuals with disabilities. They allow eligible individuals to save and invest money without affecting their eligibility for certain means-tested benefits. Each state operates an ABLE account for beneficiaries in their state. However, much like 529 plans, you are not limited to investing only in the plan sponsored by your state.
    • Eligibility: Individuals must have a significant disability that occurred before the age of 26. Eligibility is not limited to those receiving SSI or SSDI.
    • Contributions: Contributions to ABLE accounts can be made by the account beneficiary, family members, or friends. Contributions are not tax-deductible, but earnings in the account grow tax-free. While there are some tax benefits to contributing to an ABLE account, the real benefit lies in the ability to set aside funds without disrupting eligibility for public benefits that may be needed now or in the future.

Many families with special needs children are unsure of how much assistance their children will need in the future. This is particularly true when their children are young. One great benefit of ABLE accounts is that you can rollover a 529 Plan account into an ABLE account. This allows families to save for their children’s future while keeping the flexibility to roll the money into an ABLE account if needed.

• Use of Funds: ABLE account funds can be used for qualified disability expenses, including education, housing, transportation, healthcare, and other living expenses.
• Benefits:
  • Allows individuals with disabilities to accumulate savings without losing government benefits.
  • ABLE accounts provide the beneficiary with a degree of financial independence and flexibility. This is particularly true for those who may have physical disabilities, who need public benefits assistance, and who also want to have direct control over their money. ABLE accounts can be used in conjunction with a special needs trust.
  • Offers a tax-advantaged way to save for disability-related expenses.

The rules and regulations for both SNTs and ABLE accounts can be complex, and it is always recommended to consult with an experienced special needs estate planning attorney. Coordinating with your financial advisor who is experienced in disability planning and military and federal benefits can help you consider all the options when it comes to utilizing your benefits to help provide for your loved ones.

The financial planners at the Military Financial Advisors Association are here to help you consider your options when it comes to planning for children and adult children with disabilities. Reach out to one of us today!