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Helping Heroes Retire

Helping Heroes Retire

Estate Planning & Income Protection During COVID-19

Posted on April 15, 2020 by Gregg Brant

by Gregg Brant

The other day I was speaking with a friend of mine and he brought up some new words or phrases that are now a part of his regular vocabulary. Some of these words were “Zoom, N95 Mask, Social-Distancing, and Senior Grocery Hours”. One phrase that he mentioned to me though really struck a chord: “Last Will & Testament”.

In times like these, people tend to think worst case scenario. “What if something happens to me? Will my family be okay?” People start to revisit their life insurance policies, or they decide to finally complete the estate planning that they have been putting off, just in case something happens to them. A lot of people don’t know where to even start though. This article will provide you with a quick guide to Estate Planning & Income Protection to help get the ball rolling on protecting your families.

Estate Planning:

Most Law Enforcement Officers (LEOs) think their financial lives are simple and that they have everything figured out and in place. The truth of the matter is, that as a LEO, your financial affairs are typically much more complex than you might think. The days of Estate Planning only being for the “Rich & Famous” are long gone, and proper planning will ensure privacy (which is extremely important in your line of work) and that your legacy aspirations are carried out.

There are five main Estate Planning documents that every adult should have. They are:

  1. Last Will & Testament: This document tells the court who you want to close your estate, who will care for your minor children, how to distribute your assets, and what your burial preference is. However, this document does not avoid probate.
    1. Consider this scenario: If you have minor children and do not specify who will care for them, the state will determine that for you, and they will use your child’s inheritance to pay court costs and legal fees.

  2. Designation of Healthcare Surrogate: This document empowers another person (that you designate) to make healthcare-related decisions for you in the event that you cannot make them for yourself.

  3. Living Will: This document instructs physicians and medical facilities what life prolonging procedures you do or do not want completed.

  4. Durable Power of Attorney: This document empowers another person (that you designate) to handle legal and financial affairs on your behalf.
    1. Consider this scenario: Qualified retirement accounts (including deferred comp 457(b) plans, DROP assets, 185 Share accounts, IRS, Roth IRAs, etc.) are individual retirement accounts and cannot be accessed by a spouse to provide support to pay expenses if you are incapacitated without this document. Your spouse or other designee would have to go through the process to obtain financial guardianship over you – a process that is lengthy and costly, involving both attorneys and the court system.

  5. Revocable Living Trust: When used correctly, this document allows assets to bypass probate and gives the trustee power to control distributions to beneficiaries.
    1. Consider the following: Do you want your 18-year-old child (or in some cases, 30-year-old “child”) to inherit a large lump sum of money outright? Is your child mature enough to manage that money, or do you want some controls in place?
    2. When used correctly, the Revocable Living Trust also protects your assets from being subject to any potential creditors, predators, or divorce for your child.

Income Protection:

When asked what your greatest asset is, some people might say “my car” or “my house” but when you really think about it, your greatest asset is your ability to earn an income. If something were to happen to you today, what would happen to your family? What financial shape would you be leaving them in? Would your spouse have to go back to work or pick up a second job? Would they be okay, or would they be struggling? Income protection is another area that most people put off because everyone has the “It’s not going to happen to me” syndrome, until something does happen.

I will break income protection down into two categories: What if you are no longer able to work to earn an income (disabled), or what if you are no longer alive.

  1. Disability Insurance: Provides benefits to you if something happens that prevents you from working. There are many different ways to structure disability insurance, but the most common structure is 60% of your salary (tax-free) after a 90 day “Elimination Period”. The elimination period begins after the disability event occurs, and the disability insurance will not start providing you benefits until you have been disabled for over 90 days.
    1. You can have a shorter elimination period, but the premium will increase for your policy.
    2. This is where having 6-12 months of emergency fund liquid cash reserves in a bank account comes into play. It will help you bridge the gap between the time you were disabled and when the disability insurance starts paying its benefit.

  2. Life Insurance: The most common question for people looking to obtain a life insurance policy is: “How much do I need?” The answer: it depends. Everybody’s situation and desires to leave money behind are different, but below are some things to consider when evaluating an appropriate amount of life insurance.
    1. Debt and final expenses: You want your policy to cover all outstanding debts (cars, boats, mortgage, etc.) plus an estimate of your final burial expenses.
    2. Income: Determine how much life insurance you would need for your family to be able to use the insurance proceeds as a “pension”.
      1. For example: if you make $100,000/year after-tax, your income replacement for your insurance policy would be $2,500,000 for your heirs to be able to sustainably withdrawal $100,000/year using a 4% withdrawal rate.
    3. Education: Estimate the cost of putting your children through college and add that to the items above.

These three categories will help you determine how much life insurance you will need, but as I said above, everybody’s situation is different, and it is best to sit down with a financial professional to determine that amount together.

Now, more than ever, it is important to make sure you have all your financial affairs in order. It usually takes an event such as COVID-19 for people to get out of the “It’s not going to happen to me” mindset and make sure their families are protected. Thank you for everything you are doing, and please stay safe during this unorthodox time.

Gregg Brant, CFP®, APMA®, MBA

Family Wealth Advisor | Contributor

Gregg is a financial planner who is passionate about helping first responders and their families navigate their financial lives with confidence. Having a spouse who is a professor in the State University System, Gregg has worked with the Florida Retirement System first-hand for his own personal financial planning.

Now Gregg is on a mission to take this knowledge and disseminate it to the people who deserve it most; our first responders.