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The importance of thoughtful estate planning for veterans

by Legacy Plan
November 28, 2023

For veterans and their families, estate planning carries added complexities and opportunities compared to civilians. From survivor benefits to disability compensation to pensions, veterans have access to a suite of unique benefits that interact with and impact estate planning decisions. Crafting a comprehensive plan requires understanding how these programs work and factoring military service considerations appropriately into your legacy goals.

Why estate planning matters for veterans

Estate planning is important for everyone, but thoughtful planning is especially critical for veterans given their earned benefits and entitlements. Without proper documentation dictating your wishes, military benefits could fail to reach intended recipients or get needlessly diverted. For example, lacking a will or clear beneficiary designations on retirement accounts could result in the government paying survivors less than maximum eligible amounts. Failing to appoint financial and health care powers of attorney also risks critical benefit management decisions being made by the court versus individuals you trust if you become incapacitated. Beyond benefiting heirs, a tailored estate plan prevents the VA from making assumptions about your intentions if valid instructions aren’t provided.

Key benefits impacting veterans’ estate plans

Several programs warrant special attention when creating an estate plan for a veteran. Let’s examine some of these programs and how they can be integrated into a veteran’s estate plan.

VA Disability Compensation

This is a tax-free monetary benefit paid to veterans who are disabled by an injury or illness that was incurred or aggravated during active military service. When it comes to estate planning for veterans who receive VA Disability Compensation, several important considerations must be addressed.

Since VA Disability Compensation is a non-taxable benefit, it does not contribute to the gross income of the veteran. This means it should not be accounted for in the same way as taxable estate assets in the planning process.

VA Disability Compensation is intended solely for the veteran and is not transferable to heirs or beneficiaries upon the veteran's death. Therefore, it cannot be included as part of the estate in a will or trust, and planning should not assume any continuation of these benefits after the veteran's death, with the exception of certain qualified survivors who may be eligible for Dependency and Indemnity Compensation (DIC).

If a veteran's death is related to a service-connected disability, their survivors might be eligible for DIC. Estate plans should include information on this benefit, as it can significantly affect the financial well-being of the surviving spouse or dependents.

Veterans may wish to consider life insurance as a means to provide for beneficiaries, given that VA Disability Compensation ceases upon their death. The Veterans' Group Life Insurance program is one such option.

Veterans should consider the liquidity of their estate, as VA Disability Compensation ends with their passing. Other assets should be accessible to cover any immediate expenses and financial needs of the estate or survivors without relying on the disability payments.

While VA Disability Compensation is a significant benefit for disabled veterans, it does not directly impact the distribution of assets through an estate plan because it is non-transferable and ends upon the veteran's death. However, the existence of this compensation and the potential for survivor benefits should be carefully considered when creating a comprehensive estate plan, ensuring that survivors are aware of and can access any benefits for which they may be eligible.

VA Pension

The VA Pension is a benefit paid to wartime veterans with limited or no income, and who are 65 years or older or who are under 65 but are permanently and totally disabled. There are several aspects of the VA Pension that should be addressed in a veteran's estate plan.

Like VA Disability Compensation, the VA Pension is designed to provide for the veteran and is not transferable to heirs or beneficiaries upon the veteran's death, but some surviving spouses will qualify for benefits. Estate planning should take into account that these payments will cease and not count them as part of the estate's value.

The VA Pension has strict eligibility requirements concerning income and net worth. When estate planning, veterans must consider these limits because certain transfers or gifts may affect eligibility for the pension. If a veteran is receiving or may need to apply for Medicaid, it's important to consider how the VA Pension will affect Medicaid eligibility. Since both programs have income and asset limits, estate planning should address the interplay between these benefits to optimize the veteran's financial situation.

The VA has a look-back period for asset transfers, meaning that any asset transfers made within three years prior to applying for the VA Pension could incur a penalty period during which the veteran is ineligible for the pension. The estate plan should therefore be structured in such a way that it does not inadvertently trigger penalties that could affect pension eligibility.

For veterans who require the aid and attendance of another person or are housebound, there may be additional pension benefits available. Estate plans should include information about these benefits and instructions for survivors to apply for them if applicable.

The VA offers a Survivors Pension for eligible spouses and children of deceased wartime veterans. Estate planning should include information on this benefit so that survivors are aware of potential entitlements. The estate plan also should address the potential need for long-term care and how VA Pension benefits fit into this plan. This may involve setting aside other assets or purchasing long-term care insurance to cover costs that exceed the pension benefits.

Veterans receiving a VA Pension are eligible for certain burial allowances and benefits. The estate plan should provide details on these benefits and instructions on how to claim them.

VA life insurance

VA life insurance is an important element to consider in a veteran's estate plan. Various VA life insurance programs are available, such as Service-Disabled Veterans Insurance (S-DVI), Veterans' Group Life Insurance (VGLI) and Family Servicemembers' Group Life Insurance (FSGLI), among others.

VA life insurance policies allow the veteran to designate beneficiaries. It is crucial to ensure these designations are up to date and reflect the veteran’s current wishes. Beneficiary designations supersede wills and other estate documents, so keeping them current can prevent unintended disbursement of benefits.

Part of estate planning involves assessing current life insurance coverage to determine if it meets the needs of the veteran’s dependents and estate obligations. If necessary, additional private life insurance may be considered to supplement VA benefits.

Military retired pay

These lifetime monthly pension payments to retired veterans generally cease at death. However, eligible spouses can receive up to 55% of your payment through the Survivor Benefit Plan (SBP) if elected. Your plan should address SBP enrollment and allocation of any leftover sums. Military retired pay is a critical component of a veteran's financial landscape and must be thoughtfully considered within the context of an estate plan.

Booklet opening animation of our free requestable booklet 'Estate Planning When Beneficiaries Receive Disability Benefits'

SBP allows a retiree to ensure that a percentage of their retired pay continues to a designated beneficiary after their death. The decision to elect SBP should be made with estate planning in mind, as it can significantly affect the financial well-being of the surviving spouse or other beneficiaries.

While retired pay stops at death, any arrears in pay due to the veteran at the time of death will be paid to a named beneficiary. Veterans should ensure that the Defense Finance and Accounting Service (DFAS) has current beneficiary information on file.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation (DIC) is a tax-free monetary benefit paid to eligible survivors of service members who died in the line of duty or eligible survivors of veterans whose death resulted from a service-related injury or disease.

Veterans need to understand who among their dependents could be eligible for DIC. Eligible beneficiaries typically include the spouse, children under certain conditions, and sometimes parents. The estate plan should outline the eligibility criteria and necessary steps for claiming DIC.

Since DIC benefits are available to surviving spouses, veterans should be aware of how changes in marital status can affect eligibility. This includes understanding how remarriage before the age of 57 (or Dec. 16, 2003, whichever is later) can impact a surviving spouse's eligibility.

The estate plan should also address provisions for children, as DIC benefits may be paid to unmarried children under 18, those between 18 and 23 if attending school, or those who were incapacitated before the age of 18. While DIC benefits provide a source of income for survivors, they should not be the sole component of financial planning. Veterans should use other estate planning tools, such as life insurance and savings, to ensure comprehensive coverage for their dependents.

Essential planning documents for veterans

Some estate planning documents are particularly vital for veterans. Let’s examine those documents and why they are important.

Last will and testament

A last will and testament is a fundamental estate planning document for veterans, as it is for any individual, because it serves as the legal expression of their wishes regarding the distribution of their assets upon their death. For veterans, there are several reasons why having a last will is particularly important. Without a will, each state’s laws of intestacy determine the distribution of the estate’s assets, which may not align with the veteran's wishes.

Veterans with minor children can use a will to appoint guardians for their children in the event of their death. This is crucial for ensuring that their children are cared for by the individuals the veterans trust most.

A will also allows a veteran to name an executor of their estate. This person will be responsible for managing the estate, settling debts and ensuring that the will’s directives are carried out. For veterans, this can include someone who is familiar with military benefits and understands how to handle the final affairs uniquely associated with a veteran’s service.

Veterans may have specific benefits that need to be managed or claimed after their death, such as life insurance or death gratuity. A will can provide instructions on how these benefits should be handled and who should receive them.

A will can help clarify the veteran's wishes regarding the potential allocation of survivor benefits for dependents, such as the Survivor Benefit Plan (SBP) or Dependency and Indemnity Compensation (DIC).

Veterans may possess items of significant sentimental value, such as medals, uniforms, or other service-related memorabilia, and a will can specify who will receive these items.

Veterans, like others, may have complex family situations, such as previous marriages, stepchildren, or estranged relationships. A will can provide clear instructions that can prevent disputes among surviving family members.

Durable powers of attorney

Durable powers of attorney (PoA) are essential legal instruments in the estate planning process for veterans, as they empower another person to make decisions on the veteran's behalf should they become incapacitated.

Veterans receive various benefits that may need ongoing management. A durable PoA for finances can authorize someone to handle these matters, including VA benefits, military retirement pay, any ongoing claims or appeals processes with the VA and paying bills and managing investments. A medical or health care PoA allows the appointed agent to make health care decisions on the veteran's behalf. This is particularly important if the veteran has health issues related to their service, ensuring decisions align with their wishes and the understanding of their specific health care needs.

Advance health care directive

An advance health care directive, often including a living will and a health care power of attorney, is a pivotal estate planning document for everyone, including veterans. This directive outlines a person's wishes regarding medical treatment if they become incapacitated and unable to communicate their decisions. For veterans, it is particularly vital for several reasons.

Veterans may have specific health concerns stemming from their service, such as combat-related injuries or exposure to hazardous materials, which can result in complex medical needs. An advance directive ensures that their specific wishes for medical treatment and interventions are followed.

Many veterans want to control their end-of-life care, especially if they have experienced serious injury or illness during service. An advance directive can specify which life-sustaining treatments, if any, they want to receive. Also, by clearly outlining their health care wishes, veterans can help prevent disputes among family members who might otherwise disagree about treatment decisions during a crisis.

Trusts

A revocable trust can be a critical component of a comprehensive estate plan for veterans. A trust allows veterans to specify exactly how and when their assets will be distributed to beneficiaries, which can be particularly important for those with minor children or beneficiaries with special needs.

Assets held in a trust bypass the probate process, which can be lengthy and costly. This means beneficiaries may gain access to assets more quickly and with less legal hassle. Unlike a will, which becomes public record through the probate process, a trust remains private, keeping the details of a veteran's estate out of the public eye.

A trust can be structured to manage assets, including those derived from VA benefits, for beneficiaries who may not be capable or experienced in financial matters.

For veterans with dependents who have disabilities, a special needs trust can hold assets to benefit the dependent without disqualifying them from receiving their own VA benefits or other government assistance.

In addition, if a veteran becomes incapacitated, a trust can provide for the management of their assets without the need for a court-appointed guardian or conservator, and trust can ensure that a surviving spouse is provided for during their lifetime, with the remaining assets then passing to children or other beneficiaries.

Beneficiary designations

Beneficiary designations are a critical element in estate planning for veterans because they directly dictate who will receive benefits from various accounts and policies upon the veteran's death. These designations are essential for several reasons.

First, beneficiary designations generally take precedence over instructions in a will or trust. This means that no matter what a will states, the assets in accounts with beneficiary designations will be distributed to the named beneficiaries.

Designated beneficiaries can often receive assets like life insurance proceeds, retirement accounts, and payable-on-death accounts without the delays and expenses associated with probate.

Veterans may have life insurance through the VA or through service-related policies that require beneficiary designations. Ensuring these are up to date is vital for the proper disbursement of these benefits.

Veterans with retirement accounts like a Thrift Savings Plan (TSP), 401(k), or IRAs must name beneficiaries to ensure that these assets are transferred according to their wishes.

Veterans also can name a trust as a beneficiary to manage assets for minors or dependents with special needs, ensuring they are cared for in the veteran's absence.

Conclusion

For veterans, estate planning carries special importance given the complex web of military benefits and programs tied to service and sacrifice. Thoughtfully structuring a plan to incorporate earned entitlements allows veterans to fully realize their potential value and purposefully direct compensation to loved ones. Appointing powers of attorney and clearly conveying wishes ensures someone trustworthy can continue managing benefits on your behalf if you become incapacitated. Establishing guardianship for minors prevents the court from deciding who will care for your children. Enrolling in the Survivor Benefit Plan can guarantee lifetime income for a surviving spouse. And adequately providing for all dependents demonstrates the lasting commitment to family that defined a veteran's honorable service.

While government bureaucracy can seem daunting, a comprehensive estate plan creates order and ensures your military legacy is transferred smoothly to heirs. Seeking advice from estate planning attorneys familiar with veteran-specific issues helps avoid overlooking any opportunities. With diligent preparation, veterans can give their final mission the same meticulous execution that defined their military careers. The ultimate reward is knowing loved ones will be securely provided for thanks to a purposefully crafted veteran estate plan.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

Phone - 844.445.3422
Email - info@legacyassuranceplan.com
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