The BENEFICIARY

Federal Benefit Advisory

What are the most important parts of planning for your retirement? Planning for the survivor and family when you die. You will notice, I said ‘When’ because we all are, so it is best to make plans early, we never know when that last day will come. 

We all know someone old, very old, maybe 100 years or even older. This person has loved a long time and with good planning, their estate is still intact, but we also have known people that were taken from us, early, sometimes, very early. This is a tragedy and compounded with the spouse is not taken care of, or not at all.  The beneficiary(s) are an important corner stone to planning.

In most cases, the federal employee will indicate the spouse as beneficiary. That would be well and fine if we all died on schedule, but if the spouse dies first or simultaneous, the TSP is without a beneficiary and, TSP is not obligated to search for your next in succession.

When the recipient receives a check, this could only be the beginning of their inherited troubles.

The BENEFICAIRY is the most overlooked item in retirement planning, without a doubt in my 30 years of federal employee retirement planning experience, the consideration given to the beneficiary is automatic, more a reflex action, given without thought or consideration. So, what am I talking about?  You fill out a form, put your wife down as beneficiary if you die first, all done! Right? She gets your money, so what is so complicated about that?”  Let’s also ask, what happens if she dies first?  “Well, your kids get it?” Right? now we ask: How old are they?   Recently Joe told me “Right now Rob is 14 and Robin is 17”. OK, what if you and your wife pass together, say in an auto accident, or she dies first? Do you show them as your contingent beneficiary?  “Yeah, I think so?”

First, let’s talk about TSP. If you forget to name a beneficiary, TSP will confiscate your TSP funds.  “Oh well, I’ll have it in my WILL!”  Did you know TSP does not honor your will or even a trust?

Now, let’s talk about your kids. They are minors. If you died, leaving your TSP to them, they cannot touch the money until they are in their majority. Your TSP will be under a custodian. Who is named custodian? “Well, I don’t have one?”  When Robin is 18, she would get half of your $700,000.00.  Has she ever handled money before? Big money?  “Well, no, I would have my brother take care of that.”  Maybe, let’s look further. Unless she is incompetent or a danger to herself, she will own that money and can do with it anything she wants. “Well, she’s a good girl, that’s probably OK” Rob, would have to also have a custodian for four years. He then would get a check for half of your TSP. How will he handle a big check? ‘Well, not so well, we have had him in “re-hab” and he is doing OK right now. So, a $350,000.00 + check would be in his competent hands?  “I don’t know?”  Did you sacrifice for 25 years to be spent like water, party or worse? “No, I want to protect my kids, I love them”

How would you feel if you had full control over the money you are leaving to the kids, regardless of their ages, regardless of their competence when you die? What if you wanted to have certain requirements, such as one or both children going to college and when they graduate, get married or open a business?  Did you know that your children would be required to pay the full federal tax on their TSP share within 120 months or receipt as an adult, or from the date of your death?  How would you like to provide the full dollar amount of your gift to them, without a single dollar reduction due to the tax liability, all the while, protecting them in the event they take a wrong turn?

With excellent planning, this outcome is possible.

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