Legacy Planning for Military Families | Military Money Manual Podcast Episode 36

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Learn more about building a financial legacy for your family in my book The MIlitary Money Manual: A Practical Guide to Financial Freedom.

In this episode Jamie talks about his recent experience as the executor of the estate of an extended family member that passed away.

We cover building a “legacy box,” why you should buy term life insurance over whole life insurance, and things to think about if you're ever the executor or administrator of an estate.

Military Money Manual Podcast Episode 36 Links

Military Money Manual Podcast Episode 36 Transcript

[00:00:00] Spencer: And so some of the main ideas we're going to talk about today are creating an organized and thorough legacy plan, term life insurance. And we'll talk about why you should probably go with term life insurance versus a whole life insurance product. And then some tips, if you ever have to be the administer administrator of an estate or an executor of an estate. 

Hey guys and gals, Spencer here from militarymoneymanual.com and author of the book, The Military Money Manual, Practical Guide to Financial Freedom, which I just published last year, 2021. I'm here with my co host, Jamie to present today's episode on planning for the end of life, leaving a legacy and handling a death in the family.

Our podcast is all about achieving financial independence in the military. I started my site in 2012 to share everything I learned about military travel hacking, credit cards, the TSP or thrift savings plan, investing, personal finance, and other unique benefits of military service. Every episode of the podcast is designed to help you get one step closer to financial freedom.

[00:01:11] Jamie: We believe that personal finance shouldn't be boring or intimidating. And the only real financial goal worth pursuing is financial independence, which is achievable for you within 10 to 20 years of starting your journey, no matter what your current net worth is. Before we get started, we just want to thank you all for the reviews and questions that keep coming in.

If you would, and you haven't yet, please leave us a five star review on your podcast app and hit the subscribe or plus button that you see there, so you'll get a new edit, new episodes when they come out. Which we normally release every Monday. I also think about what friend or coworker you could share the podcast with this week to help them grow in their personal finance journey.

And as always, if you have any questions or feedback, you can send that to us on Instagram @MilitaryMoneyManual, or email us at info@militarymoneymanual.com. 

[00:01:56] Spencer: As someone who's dove a bit into stoic philosophy, I'm actually quite excited about today's topic. Death is a sad event, obviously, but it's also extremely clarifying while you're alive.

Every day you wake up, it's another day that you have on this earth, and we don't know how many of those days that we're going to get, and we don't know when our own death is going to be. And so it's extremely clarifying and focusing on what you do day to day. Because eventually, how you live day to day is how you live your life.

And so I think it's You know, thinking about death and thinking about what kind of legacy you want to leave after your own death can drive you to do some pretty cool things while you're still alive. And in that light, it's important to have a plan for your family, your finances, your kids, your property, should anything ever happen to you.

And so some of the main ideas we're going to talk about today are creating an organized and thorough legacy plan. Term life insurance and we'll talk about why you should probably go with term life insurance versus a whole life insurance product and then some tips if you are ever have to be the administer administrator of an estate or an executor of an estate just a quick disclaimer before we get too far into this We're not investment professionals.

We're not tax professionals. We're not estate attorneys. This is just from information that we've gathered across the internet and some of our own personal experiences as well.

[00:03:20] Jamie: That's right, man. I'm so eager to talk about this topic and share some of the lessons I've learned recently through a death in our extended family, going through the estate process, being an executor of an estate, estate representative probate court and things like that.

To me, having your affairs in order if God forbid something does happen to you is the final act of love that you can give your family. You don't want the death of a loved one to be even harder than it already is because it's already going to be chaotic and frustrating. So having your affairs in order is your final act of love that you can do for your family.

[00:03:53] Spencer: Before we get too far into planning for the end of your life, as morbid as that sounds, what are some important terms to define that some of the listeners might not have heard of before?

[00:04:05] Jamie: So the first one is probably something everyone's heard of, which is a will, which is formally known as the Last Will and Testament.

And that's just a legally binding document that details your wishes for how your estate is to be handled. In your will, you can say things like where your money and your property goes, what will happen to your children, who's going to become their guardians if they're still minors, and things like that.

For wills and a lot of probate issues, The laws vary from state to state and sometimes even county to county for probate court specifically. But it's almost always going to be the most recently signed legitimate will before death or someone becoming incapacitated, even if it's mentally incapacitated.

Some states it can be as simple as a handwritten and very informal letter that they can prove is in your writing and you still had the mental capacity to sign it. But almost always there's at least a notary requirement. Excuse me, so what becomes difficult is if in January, say you decide you want to leave all your money to kid number one, and then in June you have a fight with them and change your mind and now you want to leave it all to kid number two, kid number one has no legal standing to challenge the will as long as you update the will.

Now they could make life difficult and hire a fancy attorney and things like that. But it always goes off the newest valid will. And so I highly recommend getting a lawyer to help you with your will. All military bases have a great benefit. Have a JAG office that will do a will for you with whatever state you're a legal resident of.

So even when I was in Hawaii, I got an updated will from Florida. And they'll do that for free. And so that's a really nice benefit to save you several hundred dollars and get you that legal advice.

[00:05:39] Spencer: Yeah. We did the same thing when we were stationed at Pearl Harbor, Hickam just made an appointment with the JAG, went over there and got it notarized and signed and all done for my wife and I. And like you said, that probably saved us several hundred dollars. What about another term that I hear a lot is executor. What does that mean?

[00:05:58] Jamie: So an executor is not an executor like killing someone, although the words look the same. And I actually didn't know how to say this.

The first time we went to a meeting with the JAG office after Katie and I first got married and when he read it off of his checklist, we were both like, Oh, that's what the word it not exact, not executor, but the executor is the person that you name in your will, who's in charge of and tasked to ensure that all of the will is complied with and that your assets are distributed in accordance with your wishes.

It's also synonymous with the administrator of the estates. You might hear that term as well, or the state admin.

[00:06:35] Spencer: Another good term to know is a term beneficiary. So sometimes you hear that for life insurance, like SGLI. Or for a bank account or an investment account, right?

[00:06:46] Jamie: Absolutely. This is a really important thing.

If you take away nothing from this episode, making sure your beneficiaries are up to date is a really good thing to always keep on top of. If you have a listed beneficiary, the beneficiary is basically just the person that gets the payout or the money in your bank account, investment account, or the life insurance policy payout.

So if you have a listed beneficiary in most circumstances, if not all that. Asset or the value of that money will avoid probate court, which is a month-long process, sometimes over a year, depending on the state and the county. So the beneficiary of the account can contact the company or the bank directly and get access much quicker to the funds or the payout.

So probate court. Can take, like I said, six, nine, even 12 months or more to close out. So when you have a beneficiary, it gives them immediate access to those funds. Basically, as soon as you have a death certificate certified, they can start accessing the money by contacting the bank or the insurance company directly.

[00:07:46] Spencer: Yeah that's an awesome benefit of the designated beneficiary because like you said, you can skip all the legal process. You can skip all the courts and the legal fees. And all you have to do is like for Vanguard, for instance, you just provide them with a death certificate. And at that point, then they'll connect the account over to you.

I know a lot of times commanders and people in your chain of command might remind you to update your emergency contact or sorry, your designated beneficiary on your SGLI servicemembers group life insurance, and this is why they're so insistent about keeping your beneficiary up to date is because when the SGLI kicks in, I think it's the death gratuity is paid within 72 hours or something crazy fast like that. And then the SGLI payment is not that long after. And it must go to the person who's listed and If I've heard it once, I've heard it a dozen times. Those guys or gals who get married, lists their current spouse as the beneficiary, get divorced, get remarried, and they forget to update their SGLI.

And then they end up dying and, some accident or in a combat zone. And when the command or the finance office goes and reviews the SGI payment. They must pay the beneficiary listed, even if it was a non amicable divorce, even no matter what, it must be paid to the person listed.

And that sucks when you have a new spouse, you might have kids, you might have a completely new family. You might not even be speaking or have spoken to your ex in years, decades. And it doesn't matter whoever is listed as the beneficiary legally must be paid and it's a horrible situation.

I know, I think when we were stationed at Hickam together, there was an instance where that exact scenario played out.

[00:09:40] Jamie: Yeah, it's very unfortunate. I actually have a recent story here. The estate that I was, have been working is the deceased family member had a, relatively, it's not like a life changing amount of money, but nothing to scoff at either of a life insurance policy and as the estate administrator, I couldn't even get the life insurance company when I discovered that there was one to tell me who the beneficiary was.

So what I did is I submitted asking, basically, is it me? And then I had my wife submit, is it her? And then I told a couple other people, you just have to contact the company. And they won't tell you yes or no. They'll say, we'll send you something if it's you basically. So it was a family member's ex fiance that was listed on the insurance policy.

So we reached out to her and we're still in contact with her. And she's an amazing person. So we're glad that it worked out like that, but it could have been an ex-girlfriend that the family didn't talk to anymore or some terrible situation like that. So even as the estate administrator, I couldn't even figure out who the beneficiary was, much less affected at all.

So that's how powerful and the beneficiary designation is and how serious the banks and insurance companies take that. 

[00:10:50] Spencer: Yeah, because, and they have to, right? Because, If they mess that process up, then they're opening themselves up to lawsuits and liability. And that's something that they always want to avoid if they can.

Okay. So in preparing for death for your own death or for the death of a family member, what are some things that you've done, Jamie, and what are some things that you recommend doing?

[00:11:11] Jamie: So I'm a really big fan of a term that Dave Ramsey uses here called the legacy box. I think he has a book and maybe even a course you can do called the legacy journal.

But basically what I've taken is that. That principle of having a legacy box and I have a folder that the important people know where it is and it's safe and protected from fire and things like that water damage, but it's one source the master document of all important information that someone would need to take care of my wife and kids or my kids should something to happen to me or to both of us. It's a huge commitment. It's a big time commitment to set up the first time you do it. I worked on it a little bit over two or three weekends and I'll tell you a little bit in a minute about what I have in there. But it took me two or three weekends working a couple hours at a time to get everything, finding the insurance policies and everything's in there.

The title for the cars to life insurance information, it's all clearly labeled. I have, I went super nerd, of course, and have a table of contents. Then I have a digital copy as well. So if they can immediately have access to some of the rough draft copies on a Google drive folder or in the safe, whichever is easier for them to get to.

And so it's accessible to them and it has all the information to make it easy for someone to handle my affairs. And it's as detailed as it can be. So say that, your brother or your best friend is going to be the executor of your state, even if you're really good friends with them, they don't know the details, like where your checking accounts are and where your, all your brokerage accounts are and how much your term life.

Insurance is and what company it's with and things like that. So you have to give them all these details so they can start working your estate with you. And especially, grieving spouses or grieving kids, you don't want them to have to guess or try to figure out where the money is if they need to pay the bills.

And it just adds another layer of complexity to the family after they've lost someone they love.

[00:13:07] Spencer: So, you want to run through the documents that you have in there?

[00:13:13] Jamie: Yeah. Some examples and not a complete list, but just some ideas of some things I have in mind to give you some ideas is the most recent official copy of your will which we already talked about already about how important a will is.

So those. A will can't be signed and duplicated. It's got to be the original file and things like that. Any power powers of attorney or POA that you have are very important. That is more useful while you're still alive, but those are important to have in there as well. I have information about all my bank accounts, basic account information, what they're used for.

Hey, this account at USAA is used for emergency savings. And this one is our main check writing account. And. This is the one where we're saving for kid number two college and things like that. And then also listing any beneficiary information you have for each account. I have all my investment accounts information and beneficiary info, any assets, vehicles, house's property. Any like key electronics where I was like, Hey, make sure you find my laptop and either destroy it or take care of things like that. Any liabilities, especially if you're still in debt, the estate is going to have to cover a lot of your debts. You don't get out of debt. You don't get out of paying off debts just because you're dead.

A lot of them carry on to the estate to be liable for. So you need to make sure you have details about that as well. I mentioned titles to our vehicles, excuse me house, any documents for the house, if you own a house. Social security cards, birth certificates for the kids. I already mentioned insurance information.

So I include life, auto, home, and renters insurance. So for example, you might say something like I have a $500,000 term life. Insurance policy with MOAA that is good through May of 2024. Stephanie is listed as the beneficiary, call 1 800 blah blah blah to start the process. So the more information and steps you can give them the better.

You may also want to include some key passwords. So I handwrite that I don't have that on the Google drive copy personally, but or give them access to the password for your storage app or anything like that, where you can basically, if you can get what I've learned is if you can give them access to your Gmail account and your cell phone for two factor authentication and resetting passwords or something like that, they'll be able to handle your estate affairs much easier than trying to call up to someone and say I'm from the estate and I need to do this and you have to mail in paperwork and all that. And the last thing to include is at all points, I'd recommend including any military specific information. Hey, if I die while I'm on active duty, you're entitled to a death gratuity. Contact my commander or contact my first sergeant or contact command post or the chaplain or whoever you want to direct them to the chaplain may just be a great catch all and they'll help put them in the right direction, but any military specific information, like I see that you have SGLI, who do I contact for the military stuff?

So you definitely want to keep that in mind as well. Again, the theme is making it easy and detailed. So they have quick access to what they need to take care of your family and your kids.

[00:16:19] Spencer: Yeah. The easier you can make it, just put yourself in their shoes, right? If you had to show up and basically become somebody else.

How would you do it? And I think like you said, probably the most important thing is getting root access. That's a computer term there, but for most people, their root is either their Gmail or their Apple mail, right? It's their email because once you have access to someone's email and once you have access to their phone, then you can start.

Resetting passwords. Some people have password managers and then it's super simple because all you have to do is give them one password and say, Hey, here's the password to my password manager. And here's where my two factor app is on my phone. And once you have those two pieces of information, then they can basically hack you and become you for all intents and purposes.

And that's just, that'll make things flow much easier. Another good point you brought up earlier, Jamie, was you don't want to have your spouse, your kids worry about, Are the bills gonna be paid or the credit cards gonna be paid on time? So I think it's really important to set up auto payment on your credit cards and auto payment on your bills as well So have you know, whatever it is, whatever anything that you can automate in finance do it and so set it up so that you're You know, the electricity bill goes to the credit card and the credit card has an auto payment setup.

And I do the same thing. As soon as I get my statement though, I usually review it and then pay it in full. But on all my accounts, I have an auto payment set up as well. So in case I'm traveling, I just missed something, doesn't matter. The auto payment will kick in if I forget to pay the statement in full and it'll cover the statement and I won't have to worry about late fees or interest or anything about that.

Great point. The other thing I wanted to mention too is, when you go into the setting up your will, you could have a multimillion dollar estate, but you could still have a very simple will. Taking me, for instance, not a multimillionaire by any stretch of the imagination, but all of my assets are in stocks and bond ETFs and at the TSP and at Vanguard and a couple other investment brokerage accounts as well.

And because all those accounts have designated beneficiaries, if I was to pass away, my wife would just inherit all those accounts. And then she really wouldn't have to do anything else because she's on most of the accounts, she's a joint or authorized user. And then on the few accounts that she's not, she's the designated beneficiary.

So all of that would pass to her. We have no property, no real estate. So our will is actually, if you look through it, it's actually very simple. And the most complicated part about it is if we were to both die at the same time. And so we have a, that's where we introduce a little bit of complexity of how we would divide up our estate if we were to both pass away at the same time, but if I, if it's just one of us, then essentially the other person gets everything.

And then that's it.

[00:19:17] Jamie: Yeah. So there's a couple of different ways to set up an account. You just mentioned Spencer, one of them, a lot of banks will use the term joint tenant with a right of survivorship. So if you and your spouse, for example, are both on the account, if one of you passes, the spouse is already on the account.

So it's easy. You can also set up a transfer on death or payable on death. So if you pass away, you can have an account that's payable on death directly to me. That works as well. So there's a couple of different ways you can just reach out to Vanguard or your bank and ask them. How do you know the best way to do this?

And they'll be able to walk you through your options of how to make sure your accounts transfer over on death. Ideally avoiding estate process, estate probate court if able.

[00:19:56] Spencer: Okay. So you've got your legacy box or your Google drive. I, for me, it's a Dropbox or a Google drive account that my wife has access to.

Do you sit down with your spouse or your partner after you've written it all out and explain it to them?

[00:20:11] Jamie: Absolutely. And I would consider if your spouse is not your executor, which there's pros and cons of that, you think about if I were to pass how difficult it would be for my wife to then focus on money.

We have someone outside of our immediate family that can step in and take care of some of those admin details. So if you have that, whoever your partner, your spouse and the executor, both need to at least be aware of what's in there. If you're worried about sharing specific dollar amounts with your relative or friend while you're still alive, that's fine.

You can just say things like this is the main account. This is the big insurance policy that will cover all of my family's needs. This is the small one that will help with the immediate funeral costs or things like that. But again, making it easy, smooth, organized, and pain free as possible.

So like you said earlier, Spencer, they can come in and basically take on your persona and take care of these Spencer, one of the questions I have for you is, do you have any tips on how to pick an executor? Or what do you think about that? That's a big decision.

[00:21:10] Spencer: It is a big decision.

Yeah. I think, in the past I selected a family member who later went on to do some things that weren't quite trustworthy or I didn't agree with some of the lifestyle choices that were made with your values. It didn't align with my values. That's a good way of saying that. And yeah, so we, my, my wife and I saw this happening and we thought, man, that, that kind of person, when we selected them for a reason because they were a close and trusted family member.

And they made some choices later in life that kind of revealed that, Oh, maybe they're not the kind of person that we want to be the executor of our estate and our will. So we changed it up and we went with a close, trusted friend. It's also important to consider maybe picking someone that your spouse knows and trusts as well so that they can help them get through the process.

I think so many things in life, just writing it all out and just enabling your spouse to at least understand what's happening, even if they're not the person who's going, going to court or talking to the lawyers and so then they understand.

There's money here or there's an assurance policy here that I'm expecting and then when they get that they can, rest assured that okay, the executor is taking care of us. And then I think at the end of the day, you just, you really want to pick someone who shares your values and will act in the estate's best interest or your family's best interest. So if you've got kids, you, yeah, you've really got to, you've really got to pick someone that you not only trust. It's a big decision, but I, I hope everyone out there has some friend or some family member that can.

That they can rely on it. They can be trusted to properly execute their estate and their legacy.

[00:23:02] Jamie: The big thing I want to stomp home real quick is that communication is key, especially when you're asking someone to be your executor before you go get the will. Signed, make sure you talk to them.

Hey, I'd I'm interested in having you manage my estate. Should something ever happen to me? Are you willing to take on that burden or especially if you're going to change it, that it could be really awkward if you went from kid one to kid two, and you never told kid one that they were kicked off the Island.

It can, it could be awkward when you're alive to have those conversations, but it's much better than making your grieving family deal with those challenging conversations. And when you're picking an executor, you have to be really careful. That it's the right person. Cause it also has to be someone that has the time for it.

It can be a really busy job, especially for the first few weeks after death. And then when it comes time for filing paperwork with the court and things like that, it comes in waves, but there's definitely sprints where it was a part time job. For several days at a time during certain portions of the state.

And you have to keep track of all the time you spend on the estate, all the expenses you have, and you can actually, as the executor, be entitled to be paid from the estate. And this varies by. Yeah, according to each state's law, you can be paid by the estate. I think I said that wrong. For example, some states have a rule where it's 3.6 percent of the estate plus $1,800 for an estate value over $20,000. If you're managing a state, that's a hundred thousand dollars, you can get paid 3.6 percent of the final estate balance, but it does count as income for me. Taxable income for you. So if the inheritance is coming to you anyway, if you're the only child and you're managing your parents estate, and it's going to come to you anyway, you're the only one left, then maybe don't take that as income and consider talking to your estate attorney that's working your probate court about just taking it as inheritance instead. You'll also probably pay your attorney out of the estate funds as well.

[00:24:53] Spencer: Yeah, one book I'm reminded of when you were talking about a busy job and you have to find someone who has time for it is there's a book Mom, Dad, We Need to Talk.

And I don't remember the author right now. Can you look that up for me?

[00:25:06] Jamie: Yeah, I actually just downloaded it the other day off your recommendation. Yeah, let me, I'll pull it up while you're talking.

[00:25:12] Spencer: And so in that book, it's just, I really hate books that are 300 pages for no reason.

And I think this book isn't one of those books where it basically, it just I think it's pretty short, less than 200 pages and it, it tells a couple of stories and then it has some really good worksheets in the back and basically it just has the questions that you want to talk to your parents about.

Like, where is the will located where, who is the executor and just get the details on it so that when, if you're the executor, it's not coming as a surprise when, your parent passes away and all of a sudden the lawyer calls you up and says, Hey, by the way, your executive on this estate and that's thank you, Cameron Huddleston.

Is the author of that one. And that's a Doug Nordman recommended book as well. He was on our podcast a couple of weeks ago. And it's going to be good. Yeah. It's going to be good if Doug and I are recommending it, right?

[00:26:15] Jamie: Let me ask you, Spencer, a little bit about term life insurance.

We mentioned that a few minutes ago and that's something that you want to have detailed out in your legacy box or your folder. 

Can you talk to us a little bit about who needs term life insurance and how much and things like that?

[00:26:29] Spencer: I think the thing with a lot of people getting confused with term life insurance is it might not necessarily replace all of your income for the rest of your life. If you are making, let's say $40,000 as an E-4, E-5 in the military, and you're looking at 40 years of work ahead of you and you prog it out and you're like I'll be making this much money. Maybe I need a 2 million life insurance policy.

It's not really there to replace all of your income for the rest of your life. You could purchase a plan like that, but really what you want to be thinking about term life insurance is. Taking care of your loved ones, whether that's a spouse, whether that's kids, whether that's a spouse and kids, whether that's a mom and dad that rely on you as well or grandparents, whatever your family structure is or it could even be for a friend too.

Honestly, If that's the kind of relationship that you have where you want to have an amount of money that they can either live on or they can use to pay expenses after you if you were to pass away at a young age really term life insurance I think of as it's there as a stop gap between When you're just starting financial independence, it's in that kind of, a lot of people call it the boring middle where you've learned about FI, you're really excited, you have a, high savings rate, 30, 40, 50%, and then you just got to buckle down and you have to live your life and you have to keep your savings rate high, but once you get over the initial euphoria about learning about FI and realizing that there is an end date, To working, you just have to do it.

You have to live your life and you have to save a lot of money. And then by the time you reach financial independence, hopefully at that point, you now have enough money that you can support yourself, your spouse, your kids, for the rest of. For the rest of your life and the rest of their lives. And so if you were to, let's say that, you were living on 80, 000 a year and your FI number was 2 million.

If you've got 2 million in the stock market invested in your FI, and let's say that you've gone to part time work now, cause you still enjoy seeing people and hanging out with people, but you don't really want to be working full time. You don't necessarily need a life insurance policy because you're fine.

If you were to pass away, let's say you, it's you and a spouse. Now your spouse has 2 million in the bank. And there are, if they're not as financially savvy as you are and they're like, ah, I don't know how to get the money out of here. There's products that you could set up, you could tell them, Hey, there's a Vanguard fund that throws off I think it's 4 percent or 3 percent a year. And it just pays out to you and it, and so then that's a way to, to get income right there, or you could say, Hey, just go, take your 2 million, purchase an annuity, and you'll get a guaranteed paycheck every month for the rest of your life. And that could be in your legacy box.

Life insurance is basically from two. If you're just starting your career, you're halfway through your career, or even if you're towards the end of your career, but if you have people that rely on your income and you're not quite financially independent yet, then you should probably think about some term life insurance

We're very specific in using the term or the terminology term life insurance. And that's because you'll hear of other products out there universal or index universal life insurance or whole life insurance. And these products are their insurance, but they combine investing as well.

And there was a great write up that Personal Finance Club just did about this. You can Google index, universal life insurance, IUL, personal finance club. And he went out and bought one of these super scammy MLM, basically multi level marketing life insurance policies from one of the companies.

Cause he wanted to see exactly how bad these are. And when he, I think his punchline was when he calculated out, you were looking at like 44 percent of fees and so like where you'll pay like 0.03 percent on a Vanguard index fund. On an index universal life insurance policy, you'll be paying like 44 percent of the fees.

So they're just, they're not great investment products. They're not great life insurance products. So don't mix your investing with your life insurance. Purchase the life insurance you need a term life insurance policy and, get the right length of time, the right amount of money you need. And those, they can be extremely cheap.

I know I just went and priced one on Navy mutual. And as a 34 year old male non smoker just separated from the military within the last 120 days You can, I can get a life insurance policy for the next 16 years and I think it was like $40 a month or something for a million dollars. When you and SGLI, I think is it 20,

[00:31:24] Jamie: $24, 25 a month for 25 a month, $25 for 400,000.

[00:31:28] Spencer: For $400,000. Extreme. And then if you're in combat. Combat zone tax exclusion area. So you're, if you're stationed in a combat zone, you actually get that money refunded, so you don't even have to pay for it when you're in a combat zone. So I think life insurance is there.

It definitely serves a purpose, but make sure that you're not purchasing too much and make sure that you're purchasing it for the right reasons. And the right reasons are usually someone relies on your income. So you're the main breadwinner, or, if you have two incomes in your household.

And maybe you're living a lifestyle where, Hey, if you were to pass away, you want your spouse to be able to pay off the house, and then be able to live in a mortgage free home. Yeah. And that's, that's just a choice you need to make, but there's lots of calculators out there.

Some of the rough wags in terms of how much life insurance you might need 10 to 12 times your current income. So if you're making $100,000 a year, maybe a million to 1.2 million. And then how long? Just, if you're on the path of financial independence, then you're probably less than 20 years away from being financially independent.

So right there, just purchase a policy for 20 years and, 40 bucks a month $480, what's that? Yeah. 480 for five, about 500 a year times 20 years. It's still, it's a good chunk of change, but it's an insurance policy. It's you're paying so that if the extremely unlikely event and that's, you can look at the actuarial tables for various age groups.

And, you can see like it's pre it's a pretty unlikely event if you're a US citizen that you'll die before, the age of 40 or 50, but it's possible, and that's why you have insurance. There's a couple companies that I'll just mention off the top of my head, Navy Mutual MOAA that's military officers of America's association of America AFMA, which is army air force.

[00:33:33] Jamie: I think it's the American Armed Forces Mutual Aid Association. Does that sound right? There you go. Thank you. Yep. Yep. I have a term life with them, but I'm pretty, I think that's.

[00:33:44] Spencer: Oh, that's okay. So that's interesting. Yeah. I didn't know that. You have term life with both of them. Yeah,

[00:33:50] Jamie: So I actually have, I'll give a quick rundown.

This is just what I have right now. And honestly, I could probably drop a little bit of this now. I'm not quite ready to drop all of it, but I have a good policy. My main policies with Moa, the MOAA that Spencer mentioned, my wife and I both have a policy with them. It Costs about $57 a month for both of us right now.

MOAA actually has a tiered. Costs every five years you go into a new bracket and the cost goes up slightly every five years that you still have your policy. I also have one, a smaller one with AFMA and I pay 18 a month with them. And I have the SGLI, which is $25 a month for that 400 K. And then I have a family SGLI for my spouse.

That's only $4.50 a month. And that's $100,000 of coverage for $4.50 cents a month. And like you mentioned, Navy Mutual, there's lots of companies that do it. The big thing you want to make sure though, is that it covers a death caused by war or any special duties you have, like flight duties or submarine duties or any things like that specific to your military service.

You want to make sure that is covered in your policy because some of them do not.

[00:34:56] Spencer: Yep. Yeah, I think. Yeah that's a great example there, Jamie. It's pretty affordable, but you're looking at how much does that all add up to 60, 20, over a hundred, about a hundred dollars a month, a hundred a month.

Yeah, it's, that's the, and that's almost over, that's 2 million of coverage. So pretty reasonable there. And I think that, but that's an expense that you can carry until you're financially independent and then you can drop it. And so that's one of the benefits there too, of achieving FI is that your costs can actually go down because you don't need to.

You don't need to insure yourself anymore.

[00:35:31] Jamie: So one quick thought, Spencer, about life insurance is if you are, if you do have whole life insurance or you have a policy that's more expensive and you're ever going to switch it for any reason, make sure your new policy is fully set up and you have your certificate of coverage before you drop your whole life insurance, your old policy, you don't ever allow a gap in coverage, even if you've already applied for it and you're sure it's going to go through, wait till it actually goes through fully before you drop the old policy.

[00:35:58] Spencer: Jamie, so you recently served as an executor, like you mentioned earlier. Anything that you learned from that experience that you want to share with everybody else?

[00:36:07] Jamie: Yeah, I wrote down some other notes here just from being an executor, some tips, if you will. Like we mentioned, communicating with the person that's going to be your executor.

If someone has asked you to be an executor of their estate, the more that you can know tactfully and as much as is appropriate before they pass the easier it'll be. So if you can get an overview of what their plan is, an overview of what they have, even if it's not dollar amounts, and that'll help is, here's my bank account.

I found a safety deposit box key, for example. The bank was closed. It was bought by another bank. So I went to the bank that bought that bank from the old company. And they're like, we don't have any record of your relative having a safety deposit box here. So I'm like at some point she had one.

Cause I got a key, right? So if you can get all those details and figure it out, I don't know. Maybe there's the biggest diamond in the world might be in there. And now I'll never know because they said there's nothing there. Any power of attorneys that you have, POAs are very important, especially for military families during any deployments or anything like that, where the spouse or family member might need to, or a trusted friend.

If not married, you may need to take care of some of your things like filing taxes or registering your vehicles and things like that, where you're deployed. Even most power of attorneys will end at death unless there's limited duties that some States may allow for you to handle immediately after death to set up the estate, basically.

So as important as POAs are, it's very separate from the wills and they pretty much terminate right upon death as an executor of the estate. Another good tip or thing to be aware of is you'll have to get what they call letters or the letters of admin. And that's something you do from the probate court.

So in my opinion, hiring a probate attorney, a state attorney in the state where the deceased person lived and ideally in that county, or at least familiar with the county where they lived is well worth the 2 percent fee or whatever you might pay them because they're familiar with all the tax laws.

I haven't stepped in court. I never went to court a day. He did all that for me. He filed all the paperwork. I send him receipts and a list of expenses and a list of money and all that stuff. And he filed it all and he, I signed things and then scanned it back to him. And that was about it. So hiring an estate attorney has been very helpful, but it is a long process as well, like I mentioned before, you're not going to expect to get a big, chunk of change, or even if it's a small estate, they have, it's going to take months for it to go through the probate process, even if it's only 10 some States will have a small estate that's quicker process and a large estate that takes a little bit longer. Either way, the probate court is not quick, so be patient. It'll come in waves as the account settles and different things you discover. So be patient with it. Remember to save money for taxes and things like that. Don't dish out all the money with the first thing that comes in.

And then a month later you get hit with a big medical bill you weren't expecting. Just be smart about it and consult a state attorney or a CPA may be able to help you with that if you need. One of the things you're going to have to do is you're gonna have to close bank accounts for them. You're going to have to pay their bills and you're going to have to open an estate checking account at your local bank.

So you take all their, all the funds that they had in their bank, you. You tell their bank they're deceased and give them the paperwork, including a death certificate, and then they transfer it to this new estate account. I didn't know an estate checking account was a thing, but that's one thing I've learned recently about taxes already you will need some money initially until the estate is established. So if you do have to cover something as the executor, you're allowed to reimburse yourself. Just keep good records of that. All of your, all the time you spend, all the expenses of the estate need to be documented properly. Let's see some estate attorneys may charge by the hour and others will charge by a percentage of the final estate.

So just weigh your options, but it, for example, if. If your relative used a particular attorney to draft up their will, it might make sense. Just use that attorney to run the estate because they're already familiar with your family member. And, they're in the proper county, or at least familiar with the proper county and things like that.

And also for CPA. So I had to file income tax for both federal and state levels on behalf of the, on behalf of the deceased relative. Her CPA charged $875 for her tax returns, but I'm not going to, she's already familiar with her. She has years of history working with her. I think that's expensive for a relatively simple return.

But because she's already established a relationship with a deceased member, then it's easy to just keep that person on your team, if you will. The last big thing I want to mention is required minimum distribution on any inherited IRAs. So just like you can make a beneficiary on a brokerage account or an insurance policy.

You can set an IRA to, to a beneficiary. So their retirement account can come to you or to one of your family members. And then the current tax laws, you have 10 years to distribute all the funds out of the IRA. And so, that is taxed as a regular distribution. So you'll get like a 1099 div for that.

It's taxed as income. So you want to definitely probably consult a CPA for this as a good strategy for taking maybe a little bit of money each year, or let the money say double in 10 years, and then take it all out and have one huge tax bill. It depends. There's a lot of variables and I, there's no way I could give advice on what to do there.

Each situation is so unique, but having an inherited IRA is something you want to pay very close attention to. There is also an estate filing requirement, but it's for very large estates. Like I want to say 12 million or so. So unless it's a very large estate, the estate itself won't owe income taxes just.

Your family member, if they were alive for a portion of that year, then they may owe taxes.

[00:41:56] Spencer: One thing you mentioned there about the inherited IRA, correct me if I'm wrong, but if you're a spouse inheriting an IRA, then you don't have that 10 year rule, right? It's only correct. It skips to the next generation or later.

[00:42:09] Jamie: Yeah, or any other family member or friend. I don't know off the top of my head for spouses. I know the 10 year rule doesn't apply to them, but I'm not sure if there's any other gotchas or restrictions with that. But that's a great point. If it's from your spouse, then it's a much different requirement than what I was describing earlier.

[00:42:25] Spencer: Yeah, okay. I just looked it up here. So on Vanguard you are not required to take distributions from a traditional IRA if you are the IRA owner's spouse, a minor child. But once you reach the age of majority, then the 10 year rule does kick in. An individual is not more than 10 years younger than the IRA owner.

So let's say you pass it to a girlfriend or a boyfriend and you're the same age as you are close to the same age as you. And then if you're disabled or chronically ill, both of those as defined by the IRS, then you're not subject to the 10 year rule. Yeah. Good stuff on lots of good learning there, Jamie.

Thanks for sharing all that couple of other things. Just want to mention real quick, if you are interested in thinking about end of life planning and setting up a long term game plan for your family. A great book is Die With Zero and talks a lot about both estate planning, but it also talks a lot about making choices throughout your life so that you don't end up with a very large estate and that you enjoy your money while you're alive.

Along the ride with your loved ones a couple of their numbers. We'll just mention real quick This year the gift tax annual is $16, 000 per donor. So if you're a Married couple then you've got $32, 000 and that's per person. So let's say you've got three kids you could Gift $32,000 each of you could give $16,000 or in total you could give $32,000 to them and you don't need to report that is that's right Yeah, it's below that limit.

Cool. And then your lifetime tax exclusion for your estate is 12.06 million, but that's going to drop to 6 million in 2026 unless Congress changes the law. And so if you have. If you have a husband and wife and the husband dies first and the wife inherits the estate I believe that those two tax exclusions then become combined.

And so then you get basically a 24 million exclusion. So you don't really have to worry about estate tax until you are solidly in the multimillionaire status there. Go ahead.

[00:44:46] Jamie: Yeah, and for one other note for the lifetime tax exclusion is you can borrow from that. So let's say that I wanted to give you Spencer $50,000 this year.

I can do that without a tax implication by borrowing from the lifetime tax exclusion. I just have to report that to the IRS and you basically file a gift tax return. There's a specific form for it and your CPA can help you with that. It's probably not something that you would do on your own through H and R block online or anything like that.

But just because it's over that $16,000 per person per year, doesn't necessarily mean they're going to owe taxes on it. You just have a different reporting requirement to the IRS.

[00:45:24] Spencer: That's right. Two other documents that I'll mention real quick. When you go, to make your last will and testament. At JAG, they'll probably also have you draft an advanced medical directive and a living will as well.

And so the advanced medical directive essentially just lays out what your desires are for medical care. So if you don't want to be resuscitated, if you don't want a ventilator, if you don't want to be on feeding tubes if you have a, if you're brain dead and you just want to, have the life support turned off, then you can put that all in there.

And then your, whoever has power of attorney or definitely a power of attorney out of there from the advanced medical directive can follow your wishes and it, that just helps, your family, if in some small way to, for you to communicate what your desires were, if you ever ended up in, in that horrible situation.

And it doesn't mean it's going to eliminate all family drama or make the emotional and difficult choices any easier, but at least it just adds a little bit of context for them and it allows you to communicate your desires in advance. Another thing that you might want to consider adding to a legacy box or to a Google drive account is maybe just a letter.

Just like explaining a couple of key points and just maybe give the overall big picture Hey, most of our money's here. At Vanguard, we have a little bit of money in betterment, but it's really not that much. And, if you're reading this and we never had a chance to formally discuss what our plan, what the investment plan is, here's my investment plan.

And, like for my wife, it's going to be basically. Go to call Vanguard and sign up for the Vanguard personal advisement service. And it costs 0.3 percent or 30 basis points. And she'll basically tell them, I'm this old, I'm this old. I'm okay with a lot of risk and just invest my money for me.

And then they'll handle all of it. And then if she needs money out of it, then she can just go on the website and she can just pull money out of it. So that's And you could have something similar here's our financial advisor. Just, call up him or her and say that maybe a lot of people will have money that they've invested on the side.

And you might say, look, that's too complicated if I was to die and just. Call it Frank, the investment advisor and say, here's all the money, please manage it. And if he's, if he's proven himself and he's trustworthy and then, pay out this much a year so that you have your living, living expenses covered.

Yeah.

[00:47:58] Jamie: Great points. I thought of two more other tips. If I can share real quick, you. As the executor or any family member in this situation, you really want to take a little bit of extra time if emotionally you can handle it to do your research on accounts and insurance policies and things like that.

So one quick example is this family member that passed away had long term care insurance and we got a bill. For several thousand dollars. And so I took the time to reach out to the place that sent the bill and ask questions about it and reach out to the long term care insurance and figure out exactly what they need to work it all out.

And in the end, less than two hours of work, and I got a $7,800 reimbursement back to the estate. So that's the kind of person and the level of detail that you hope that someone would run for your estate is that They'll go the extra mile to make sure your estate gets everything it's entitled to, to take care of your wife, your spouse, or your kids.

The other one is that each bank has a different process. Some of it you can do before death, like you can designate a power of attorney today, if you want, with Citibank, with Amex, with USAA, and go ahead and turn in that documentation now, so there's no delay in them accessing stuff. If it's the same person, if that makes sense.

But when it comes time to submit the death certificate from the admin of the estate, one bank may have, upload a copy of the death certificate online, one bank may need a notarized form. One bank needs it snail mailed. One bank, it can take a fax. So it's a pain, but you're going to have to.

Do the research for each individual agency that you're working with, and they're all going to have a different process. So that's part of the time commitment I mentioned earlier, but hopefully it's worth the investment and hopefully you've picked someone trustworthy that will take care of your state properly.

Thanks again for joining us today to discuss the end of life planning that focused on legacy boxes being organized and how that is an act of love for your family. We also talked about term life insurance. And a state administrator duties. We now have over 23,000 downloads on the podcast so far. And that's really awesome.

Thank you guys. Our most popular episode, by the way, is the TSP episode. That's episode number two. If you haven't listened to that one yet. 

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