What Every Individual Needs in Their Estate Plan Part II: Planning Post-Mortem

< Part I: Incapacity

What has happened over the past 15 months in the United States and throughout the world as a result of the COVID 19 pandemic has taught us a valuable lesson. We live in a new age of uncertainty. All of us need to be prepared for the unexpected. Every adult – this includes all federal employees and retirees and their adult relatives – needs an estate plan. In particular, every individual has to be concerned about making sure they have decision-makers in place should they become incapacitated and immediately upon their death. Among other things, a proper estate plan will address who will make decisions about an incapacitated individual’s medical care, finances, and potentially the distribution of their assets if they become totally incapacitated or die and cannot make those decisions.

Estate planning is by no means solely for “rich individuals”. An individual’s estate includes everything an individual owns. The estate can be of any size, which is why it can be worth taking the time to plan for what happens to it “just in case”. This is the second of two FEDZONE columns presenting estate planning for federal employees. This column will focus on estate planning post-mortem. Last week’s column discussed estate planning for incapacity.

Although Congressional action in recent years has effectively eliminated federal estate and gift taxes for all but the wealthiest Americans, there is still a vital need for estate planning with respect to the distribution of one’s assets upon their death. There are several key reasons for this type of planning including: (1) to make sure that all of one’s specific wishes are followed after death; (2) to plan for any state inheritance or estate taxes, if one lives or owns property in a state which levies such a tax; and (3) to plan in advance how to pay for any estate settlement costs. Federal estate tax rules may have changed (to the extent that few individuals will owe Federal estate tax when they die) but planning for the distribution of one’s estate upon one’s death is still vitally important.

Transfer of Assets

A primary objective is to ensure that an individual’s assets go to those individual(s) wants to inherit them.

There are three ways assets can be transferred at death:

1. Will. A will is a legal document prepared under state law which names those who should receive an individual’s property. An executor is generally named in the will to carry out the individual’s specific wishes. Upon the death of the individual “probate” will be required. This process is when the property listed in the will is distributed to the named heirs under court supervision. The probate process can, unfortunately, be expensive and time-consuming. The probate process also makes the content of a will a public record. If an individual dies without a will, known as dying “intestate”, the individual’s property will be distributed according to state law, which may result in the individual’s assets being distributed in a manner not in accordance with the deceased individual’s wishes.

2. Revocable trust. Also known as a “living” trust, a revocable trust can be changed or revoked during the lifetime of the trust creator (the “grantor, “settler” or “trustor”). Such a trust is often used as a will substitute when the grantor transfers assets into the trust during his or her lifetime or at death through a “pour-over” will. A revocable trust can make settling a decedent’s estate easier and less expensive than probating a will and can also provide privacy not available in probate.

3. Irrevocable trust. An irrevocable trust, as the name implies, cannot be changed once it is set up. These trusts are often used in estate planning for wealthy individuals. An irrevocable trust which holds life insurance can provide the funds needed to pay death taxes and other estate settlement expenses while keeping the life insurance proceeds outside of the taxable estate.

Importance of Titling Financial Assets Properly

An important part of an estate plan is to fully understand how an individual can own financial assets and how they are titled. The three types of financial asset ownership are:

· Solely owned assets. Assets that are solely owned may pose the biggest challenge for surviving family members when they are trying to determine who is going to inherit these assets. Hopefully, these assets are included as part of one’s will or part of one’s revocable trust thereby passing the ownership to a designated individual.

· Assets in which a beneficiary can be designated. Note that since these assets have a designated beneficiary, a will has no effect on this property. Examples of these assets for federal employees:             (1) TSP; (2) FEGLI; (3) CSRS contributions; (4) FERS contributions; (5) checking and savings accounts which have a designated beneficiary through a “payable on death” (POD) designation; (6) IRAs, both traditional and Roth; and (7) brokerage accounts through a “transfer on death (TOD) designation.

Other questions and issues that may be needed to be considered and discussed when meeting with an estate attorney to establish one’s estate plan.

· Who will care for minor children and other dependents? If neither parent were living who would raise minor children, generally children younger than age 18, or take care of other dependents such as elderly parents? This includes managing their assets. A guardian or conservator needs to be named.

· Jointly owned assets. To increase the ease and the need of transferring at death, certain financial assets such as checking and savings accounts and non-retirement brokerage account – in which stocks, bonds and other investment assets are held – may be helpful and beneficial to have these assets, titled or designated as jointly-owned with rights of survivorship (JPWROS) for married couple, either a same-sex or a heterosexual couple, own an asset as joint owners with rights of survivorship, called joint tenants with rights of survivorship (JTWROS) or joint tenancy by the entirety (JTTEN). When one of the owners of a JOWROS or JTWROS held asset dies, the surviving owner in most states, will present a death certificate to the financial institution holding the asset and title to the asset will be changed to the survivor owner.

· Letter of Instruction. A “Letter of Instruction” is an informal document in which an individual gives specific instructions that cannot be altered. It is usually left with the person’s executor or immediate relative. Typical items that may be included with a Letter of Instruction included in one’s estate:

­ where key documents including a will are located;

­ a list of digital assets;

­ a list of up-to-date passwords for computers, laptops, iPhone, security systems;

­ funeral and burial instructions; and

­ personal matters that are not chosen to be included in a will or trust but maybe useful to the executor.

  If written instructions have not been provided in the form of a legal will, then surviving family members of the deceased (assuming there are surviving members) will have to rely on the “intestate” laws of the deceased’s legal state of residence in order to determine how the solely owned asset will be distributed. It will also have to be decided which assets will be used, perhaps sold to generate cash, to pay any estate or inheritance taxes due, as well as other expenses of settling the estate.

Estate Planning Quick List

Do you need to plan your estate? If you already have an estate plan, when was the last review?

ItemYesNoLast Review?
Will – Do you have a will? A will is a key estate document   
Revocable trust – Do you have or need a revocable trust? A revocable (or “living”) trust can be used as a will substitute.   
Irrevocable trust– Is an irrevocable trust need to pay estate taxes (federal and/or state) and other settlement expenses?   
How are assets owned? ­– Are assets appropriately “titled” to meet all estate planning goals?   
Beneficiary designations – Are beneficiary designations current for life insurance, 401(k), IRAs, and other assets?   
Estate settlement costs: · What has been done to reduce estate settlement costs? · How are any remaining costs to be paid?   
Estate taxes – Has estate tax planning been done? Under federal net estates of less than $11,700,000 (2021) are exempt from estate tax. State law may differ.   
Providing for survivors: · Are guardians needed for minor children? · Do you have any beneficiaries who are minors? · Is professional asset management necessary?   
If you cannot act for yourself- Do you have: · A “living Will?” · A durable power of attorney for health care? · A durable power of attorney for financial affairs?   
Is there a letter of instructions? – A private, informal way of guiding your family or executor in settling your estate.   
Do you wish to leave an “ethical will?” –  An ethical will is a spiritual legacy to future generations.   

Seek Professional Guidance

The guidance of a trained, experienced attorney is considered essential in the development of a successful estate plan. Professionals from other disciplines such as income tax, life insurance, trust administration, charitable giving, and investment management may also be part of your estate planning “team.”


Edward A. Zurndorfer is a Certified Financial Planner, 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 the employees of Serving Those, Who Serve 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.