You just got a call from the doctor—and it wasn’t the news you were hoping for. You’re scared, but you’re determined to beat this sickness. Although it is important to keep a positive mindset and fight your way back to health, it is also essential to have a plan in place in the unfortunate event that you aren’t able to overcome it. So what do you do next? In this episode, Michael, John, Tommy, and Ben will be discussing what you need to have in place to ensure your family is taken care of if you pass away.
Listen in as they explain who is suitable for disability retirement, how to receive an accelerated death benefit, and the importance of having a financial planner who knows your situation. You will learn what to do in your estate plan if you are dying and why it is essential to have a trusting relationship with your financial advisor.
Listen to the full episode here:
What you will learn:
- What you need to know about disability retirement. (7:30)
- When you should choose disability retirement over regular retirement. (11:15)
- The importance of having a financial planner who knows your situation. (14:00)
- How to ensure you can just grieve, rather than stress about finances. (19:00)
- The benefit of working with an advisor that specializes in you. (25:00)
- What to do in your estate plan if you are dying. (32:00)
- The importance of having trust with your financial advisor. (40:00)
Ideas worth sharing:
- “We want to show you that life will be okay before your passing, and it will be okay after your passing, too.” - Mason & Associates
- “Have an advisor relationship that specializes in you.” - Mason & Associates
- “You should annually be confirming your beneficiary designations.” - Mason & Associates
Resources from this episode:
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
Michael Mason: Welcome to the Federal Employee Financial Planning Podcast, hosted by Michael Mason, certified financial planner; John Mason, certified financial planner; Tommy Blackburn, CFP, certified financial planner and certified public accountant. And with us in this episode is again, Ben Raikes, CFP and IRS enrolled agents.
Mason & Associates have over three decades of experience helping federal employees with their financial plans.
This podcast, You Just Got Bad News. You may be mid-career, you had a bad diagnosis as a federal employee. Where do you go?
John, before we jump into that?
John Mason: Yeah, thank you for joining us on another episode of the Federal Employee Financial Planning Podcast. For those who've been listening for over a year now, thank you for your support.
If this is your first time tuning into one of our episodes, we’re Mason & Associates. We’re a financial planning firm with over three decades of experience serving federal employees.
The firm was founded in 2003 by Mike and Ken Mason, and now, we have three other advisors who are also, on this podcast today.
So, we're financial planners first, we're podcast hosts second, and we specialize serving federal employees 55 and older who have 700,000 or more in assets available to manage.
If you like what you hear and you would like to be on our team, you can learn more at masonllc.net. You can listen to the new client process and experience podcast episode, which is right on our homepage.
We'd love to hear from you whether it's in the comment section or a direct email at masonfp@masonllc.net.
Tommy Blackburn: And John, I guess I just wanted to piggyback there with you. If you think you'd like to be a part of our family and that we could be a good match, and you give us a call, I think we genuinely promise that you will leave that call better than before you called us.
And that we're probably going to answer questions that you didn't know how to ask.
Mike, I know you know how to say that line better than I do.
John Mason: We'll answer the questions you have and the questions you didn't know to ask.
Tommy Blackburn: There you go.
John Mason: And I think, Tommy, you're spot on. That's always been our commitment, at least as long as I've been here, which is close to 12 years now, is if somebody takes time out of their calendar to schedule an introductory phone call and an appointment with us, we're vested, we're in, and we're going to show up prepared ready to go.
And why not provide massive value during that time? So, clients or prospects are going to leave better than when they came in. That's our commitment.
And then maybe a Bob holism, you cast your bread upon the waters and it'll come back in club sandwiches. We know we can't help everybody long term, but if we're already committed, we're going to make your life a little bit better.
Tommy Blackburn: Absolutely. It's everybody's time's valuable. So, if both of us commit to that time we're going to take it seriously and make sure everyone gets value out of it.
Michael Mason: Gentlemen, and our audience, I've got a little bit of grief for this topic. This is my topic today. You're not happy to talk about things that are not happy.
But I've been doing this 35 years and life happens, and sometimes our clients, or maybe a would-be client gets bad news. We can get bad news at any point in our lives. You get bad news, you get a bad diagnosis.
John Mason: Meaning you're going to die.
Michael Mason: Yeah. Let's call it Susan Genieism. Well, it's highly likely that you're going to die. ALS, advanced Parkinson's, some type of cancer.
Over 35 years, I've seen many of these, and I'm sure I didn't do what I was supposed to do the best way early, but I've morphed into, you just have to hit it head on.
So, what we have to know is we want to support. We don't want to take away that person's … people have a glass half full mentality. They are going to want to win. They're going to want to beat this. They're going to want to pray and believe they can beat it.
And we need to help support that at the same time that we help plan for what if it goes the other direction? And that's a tight rope that needs to be walked, that most people can't.
So, I think it's valuable for federal employees that we have this conversation that folks can turn to because they may have nobody else to turn to. What happens if I'm a federal employee?
And many of these things can go for folks that aren't. But again, this is our specialty.
What are the things I should be thinking about? Who should I be turning to? If I've got a diagnosis that more times than not is going to end in death what things should I be thinking about?
John Mason: So, I'm terminally ill, what do I do next?
Michael Mason: Right.
John Mason: And I think as we talk about this topic we've talked about the joys of retirement. We've talked about turning left on the airplane, which you may have a fundamental disagreement with, but everybody enjoys their money differently.
So, financial planning is not all sunshine and rainbows. In fact, a good part of financial planning, the most basic part is like insurance and risk management.
And as we think about a terminal illness or a death, that's where like the insurance kicks in, that's where the risk management piece kicks in. So, solving that portion of one's financial plan is necessary from the beginning.
We focus on the sunshine and rainbow most of the time because that's the fun stuff. This is like getting back to blocking and tackling.
The bottom part of the pyramid, step one, Mike, is like making sure our family is taken care of in the event of death or disability.
And some of these diagnoses could be both. It could be a permanently disabling that eventually leads to death, or it could be death in a relatively short period of time.
Michael Mason: Yeah. Well, you hit the disability thing quick. I mean, almost like Social Security compassionate disability because they know that 99 times out of a 100, it ends in death.
So, as I was thinking about this logically, I wanted to go through the broad categories that we should think about. FERS, Federal Employees Retirement System Disability.
John, I guess we could talk about CSRS disability as well, but they're so advanced. Most CSRS folks have already earned a retirement. So, let's hit disability first.
Understand that if you already have enough time in service, 30 years, and have reached minimum retirement age or 20 years at age 62, then you've already earned a retirement, so disability doesn't matter.
So, this disability is for folks that haven't already earned a non-reduced retirement check.
John Mason: An immediate unreduced retirement. Exactly.
So, for federal employees, Mike, who would qualify for a disability retirement, that's typically, like you said, going to be somebody that has less than 30 years of service and is below MRA, minimum retirement age. And then there's those other rules too.
So, for that person, if they were to go out on disability, let's just say me at 35 years old and I make a $100,000. My first year of disability is going to be 60% of my High-3, less 100% of any Social Security benefits I may receive.
So, essentially what that means is I'm going to get $60,000 year one.
Year two, my first disability calculation is I received 40% of my High-3, less 60% Social Security. And that calculation remains constant from the second year of retirement all the way through age 62.
With the new calculation coming at 62, the government basically says, what if you had worked the entire time and your disability now, converts to a retirement benefit?
So, it's way different than like if the three of us, young advisors over here were to buy a disability policy, those benefits are typically payable until 65.
Tommy Blackburn: And then it switches over to Social Security by itself. At that point, you lose that disability policy. Usually doesn't then morph into a retirement pension as well as Social Security.
So, you usually are having a reduction in income for the private sector once you get to age 65.
So, this is a benefit nobody ever wants to use this far as disability. You hope you don't find yourself in that situation.
Truthfully, a tremendous benefit particularly that it then converts to retirement as if you had worked an entire career.
Michael Mason: And the thing that we have to balance as advisors is you also, have the ability to maybe push on for a little while, continue working, maybe if the illness gets tough and you can't work, donated sick leave and whatnot.
But you have to put these things together that says, when you go out on disability, you've elected a survivor annuity. Or you should elect a survivor annuity to your spouse.
And you have to put things in perspective and say, if this ends the way it does 99.9% of the time, which way is it going to be better for your surviving spouse, whether you died as a FERS disabled or as FERS active?
So, we'll talk about in-service survivor benefits as well as retirement survivor benefits.
John Mason: And that's already complicated enough and it actually gets harder because let's face it, we've seen, Mike, you and I, and I'm thinking of one particular family offhand, he was six months — maybe not six months, he was pretty close to retirement.
And he had an option where he could either leave today and go out on a FERS disability, or he could take donated leave, and sick leave, and annual leave and retire.
So, he would've qualified for disability retirement in January and in December he qualifies for a retirement retirement. Which one's better?
So, not only is it do you go out on disability retirement or potentially die active duty, active federal. The third wrinkle there is do you retire? Do you stick it out just long enough and then put the retirement card in?
Michael Mason: Yeah. And a quick exercise, and fix me if I'm wrong, but let's say you had 30 years of service, but you're 55, so you don't qualify for the immediate retirement.
So, then you have to look and say, “Well, if I take disability, well, now, when I die, my pension and my survivor benefit's going to be based on my age 62, not my age 56 if I waited one more year.”
So, these are the things you put on a scale and say, “Which one's going to provide the longest best benefit for my spouse?”
John Mason: And that example of one was to retire, (and we're really getting down into the weeds fast) is, okay, so, I have 30 years, now I have a 30,000 pension.
But I also have a first supplement, and let's say that's 20 grand. So, now, I'm making 50. Oh, by the way, there's no rule that says I can't also get Social Security disability.
So, now, all of a sudden I'm pulling in another 24 to 28 grand. I'm making $75,000 a year because I'm receiving a FERS retirement, a FERS supplement, and a Social Security disability.
So, sometimes it's actually better to retire retire than it is to go out on DI.
Tommy Blackburn: Because that FERS DI would also, have that offset for the Social Security income. So, in effect, would I get a reduced Social Security if not completely offset.
Michael Mason: Yeah. And guess who's not going to help you with this? OPM is not going to help you with it.
John Mason: Anybody but us.
Michael Mason: Well, yeah, yeah. So, we've kind of covered … I mean, we could go into great detail. This is really the point of all of our podcast episodes, is to give you enough information to realize you're not getting enough information anywhere else and to seek it in other places.
John Mason: Well, and maybe also, Mike, motivate folks. So, I think a lot of times people think, “Well, I don't necessarily need a financial planner because I really enjoy managing my TSP, or I really enjoy managing the investments on my own.”
It's like I think one of our missions behind this podcast is continuing to revolt against the idea that what we do for a living is manage money. We do manage money. That is something we do, but we're revolting against the idea that that's a value proposition.
The value proposition is being able to come in during times of need. Like the transitions that we watch our clients go through are both happy and sad.
And a qualified team should be able to help people through all of those transitions, not just the happy ones.
And unfortunately, we have not found another firm that's capable of helping families through these hard transitions because nobody takes the time to actually know these rules.
Ben Raikes: Bringing this back to the comprehensive nature of financial planning, as you said, John, not just managing money.
But I mean, we've been talking about just disability insurance for how long now. And going into the weeds and the depth of knowledge is so great, but what's the other step to that?
If you're going to work with a client, what do they also need to know? Is this actually going to be enough for my lifestyle? So, not only do you have to know it, you have to incorporate that into a client's plan, into a client's lifestyle.
All of this knowledge is really just a first step in getting to know a client and give them the advice that they need.
Tommy Blackburn: I'll tell a story from my early days of working at the firm. And I know we all do this, and, John, I know you've experienced. But it was one of these cases of you just got bad news that I was working Mike with.
And Mike, a lesson I learned from you there, maybe you don't even know it, maybe you're hearing it for the first time now, is just kind of a immediately jumping in and saying, “Don't worry about your family being able to financially take care of itself.”
“Like I can tell you right now, your disability benefit's going to be this, your compassionate Social Security disability. Here's how all your income, I can tell you very quickly how it's all going to shake out and that your family's going to be okay.”
“You have a limited amount of time left with your family. Focus on enjoying that time with your family.”
And to me, I mean, that really was a moment that I took away. I was like, wow, that is great financial advising of being able to say, “Look, I know what's on your mind. You're worried about your family.”
“You have a limited amount of time. Stop wasting it killing yourself at work because you have a limited amount. Take it, here are your benefits. Let's take advantage and enjoy the limited time you have.”
Michael Mason: You read my mind, Tommy, and I'm glad you told the story versus me because it one, it's great minds think alike. When one of our clients dies, we say to the surviving spouse, “It's time for us to go to work and for you to just grieve.”
And the same story in this case, if you have somebody that's contemplating where should my last three months, six months be spent? Should it be spent with my family while I'm still healthy enough and vibrant enough to maybe take the trip we've always talked about taking, or can I take the fear away?”
That you can do that and your family's going to be okay. Spend the time with your family. We can show you that life's going to be okay before death happens and it's going to be okay after. So, that's a great point.
John Mason: And we would hope, I think, guys, is that again, motivating our audience and motivating our clients, and then hopefully through referrals that people are seeking qualified financial planning advice today when things are good.
The idea of planning for the future versus reacting to a bad outcome or a bad notification or a terminal illness.
Seeking that qualified financial planning advice today cannot be stated how valuable that is. Because if somebody is working with us today, they know right now, at 55 years old, that they're going to be able to retire at some point.
They know that if they were to pass away, whether or not they have the appropriate amount of insurance. They have an idea on what that 30 or 40-year tax plan looks like.
After coming in meeting with us, there's visibility into all these pieces. And oh, by the way, we helped them update their estate planning documents. So, there's visibility into all of these scenarios.
Tommy Blackburn: You got the fundamentals. You were mentioning earlier that we spent a lot of time talking about the fun things because I mean, that's the enjoyable part of life. And that this is the fundamental aspect of a plan.
And it is that. It is exactly, it's fundamental. We have to get it in place. And that allows us to focus on the fun things. It allows us to enjoy the day, to do these other things because we know that there's a plan in place for the you just got bad news scenarios.
And if you have a good advisor, a good relationship, you know that one, there's a plan and there's a person that's going to step in and help you manage that situation.
John Mason: Yeah, having visibility to know that everything's okay, to free up your mind to start doing those fun trips or fun travel or start thinking about retirement, having visibility into all aspects of that I think is just so important.
And I hope our audience doesn't let too much grass grow between hearing this episode and reaching out to a financial planner that can help them have visibility. And like our song says, you'll rest easy once your plan is done.
I think over and over, I know we have more that we want to talk about as it relates to terminal illness and bad news, but one positive thing to think about here is, Tommy, that young couple we worked with where there were some debt, there were some cash flow issues, it was highly stressful.
And because we were able to give them visibility that 15 years from now, retirement's going to be great. Let's reduce TSP contributions, let's go do these things now, and life's going to be okay.
Mike, it was so rewarding to be able to look at that mid-career professional and let them know that retirement was one, let's just focus on private school. Retirement is one, let's just focus on taking care of the kids and the family and going on vacation. Let's do that now.
And that's similar to having a terminal illness. Like giving people the ability to see what those answers are and then to be able to make adjustments on the fly. It could be both good adjustments or bad adjustments.
Michael Mason: Well, I mean, the points you're making are great. You would much rather have a relationship with a knowledgeable financial planner before any of these things happen.
You don't want to be scrambling because you got that bad news and then going to find somebody because now, you have the trust issue that you have to work through and everything.
And the beauty of this podcast is we want to give you some guidance. If you don't have that person in place, some guidance as to what to expect.
The next piece of this I wanted to discuss is federal employees group life insurance. Many times if you're making that decision, do I retire or do I go out on disability? You may have to ask the question, if I retire on disability (is the key) have I had my federal employees group life insurance long enough that I can keep it?
What if I just got it two years ago in the open season? And if I go out on disability, I haven't had it five years, so I can't keep it. You have to be able to answer that question.
And Ben, what's the neatest thing? And I shouldn't say neat. What is an option on FEGLI basic? If you have a terminal illness, what's the optional FEGLI basic that many folks just don't understand?
Ben Raikes: Mike, I believe, and correct me if I'm wrong here, that you have the option for an accelerated death benefit with FEGLI basic if the death is expected to occur within nine months, I believe it is, something like that.
Michael Mason: Yeah, it's six to nine months. And accelerated death benefit means if you have a $102,000 of FEGLI basic or 162,000, whatever it is, you can access all of that for whatever reason.
Now, let me give you a reason that hadn't crept up until a week ago. Let's say you're retired military and you didn't take survivor benefits, and now, you're a federal employee and you have a terminal illness.
Well, for all of 2023, (and we'll do an episode on this as soon as all the rules come out) there's an open season for military who turned down survivor benefits to get back in or to get in. They were never in the first place, to get in. But they're going to have to pay back premiums and interest.
Well, where in the world could you get the premiums and the interest? Well, maybe the accelerated death benefit rider on either your FEGLI basic or maybe you have a private sector insurance policy that has similar.
John Mason: I like how you brought in private sector, Mike, because these accelerated death benefit riders have been around for decades now.
And essentially what that says, I think you said it well, if you're terminally ill, death is coming in a short amount of time, we can go and get in FEGLI a hundred percent of that death benefit. Private sector, it could be like 50, 75% different math.
But it allows you to get that benefit tax-free today to use for a variety of things like buying your military time towards your FERS pension or getting your foot back in the door for military survivor benefits, or going on the vacation of a lifetime.
There's no rule on how you spend this money. It could just be prepaying some funeral expenses. It could be a variety of things. But going in and getting those funds now can be beneficial for a lot of reasons. Even just padding the checking account so it's not so stressful when the inevitable happens.
And why wait to get the death benefit if you can go ahead and get in advance, just because?
Michael Mason: And just go to the website masonllc.net and seek out the FEGLI episode. And it'll go through more of the details than we just did on FEGLI basic, in-service death benefits, and the rest of FEGLI. So, make sure you listen to that if we've left any holes in that description.
John Mason: Probably good, real quick, just to hit on how FEGLI basic works in retirement. So, typically what happens when a federal employee retires, let's say with a hundred thousand of FEGLI basic most elect something called the 75% reduction, which means that a 100,000 is going to drop by 2% a month down to 25,000. And that's going to flatline there.
And eventually when you pass away, hopefully a long time from now, your beneficiaries will receive 25,000.
Well, let's pretend now, you're retired federal, you're 65, you just submitted those retirement papers. Your benefit's going to start reducing by 2% a month, but now, you're terminal.
Now, you have a reason to go in ASAP and claim that accelerated death benefit to stop the 2% reduction. So, if I'm terminal, I want to go in and I want to grab that death benefit now, rather than continuing to let it slide down at the 2% a month.
Tommy Blackburn: What a great piece of information. And I don't know, did Ken, was he the one that figured this out for … maybe you already knew it. I thought I remember Ken bringing this to light in one of our advisor meetings. But great points all around.
I love to live a take the vacation of a lifetime, but also love the out of the box thinking of the military SVP.
Hopefully what's ringing true to most people that I'm hearing is having that advisor relationship that specializes in you and can really connect all the dots of a plan, and particularly if they were in the game for years now of knowing your situation versus trying to do triage when we just got that notice.
John Mason: Well, and let's face it, some of these things that we're saying are not exactly typical run of the mill recommendations either. Like these are rather extreme. So, imagine having these conversations with a client you just met with these extreme scenarios.
If I'm a client, I'm thinking, “Oh my gosh, like this sounds very extreme. Like Mason & Associates comes highly recommended, but I literally just met you and you're asking me to go like off the wall here with these recommendations that I've never even heard of.”
Tommy Blackburn: And you're saying it with a straight face, John.
John Mason: Versus like how much easier is it to make these recommendations to somebody that you've already had a 5, 7, 10-year relationship with?
They don't feel like they're being taken advantage of. They just get to focus on the grieving and then focus on the quality of advice.
I imagine these recommendations would potentially even scare some new clients away because they're that out of the box.
Tommy Blackburn: Well, John, I know we need to get through some of the other parts that we want to talk about, some of the benefits of being a federal employee, how your plan could work.
But we've kind of talked about that grieving process and having that relationship already so that you can focus on grieving or whatever it is.
And so, if you just got notice of a terminal illness, you may be in shell shock. I just don't even know, to your point, like how well you can even digest some of these things that we advise to you.
So, yeah, 100% dovetail agree with you, if you can have that relationship where somebody knows your situation, you already trust them, they can dish out that advice and kind of bring a picture together and allow you to focus on more important things given where you are in your life at that moment.
Michael Mason: So, the pieces that I wanted to make sure we looked at. One, we have a terminal illness. Can I just go ahead and do a FERS disability retirement? Maybe I've already earned my retirement, so should I just go ahead and retire? What are we doing with our life insurance?
But I think a misunderstood piece of the FERS retirement system is the in-service survivor benefit or the in-service death benefits. Because if you're trying to struggle and make the decision, do I keep pushing on working? Because it's more beneficial for my family if I die on active duty than it is if I die on FERS disability.
Let's talk just a little bit about the FERS in-service death benefits.
John Mason: Well, I guess the two big rules, one, if I can, what is a survivor benefit anyhow with FERS? And a survivor benefit from a retirement perspective says if I have a $40,000 pension at my death, my spouse will receive 20,000. That would be the maximum under FERS, which is 50%.
Option two is a 25% and option three is zero.
So, we encourage maximum survivor benefits, Mike, which is 50% of the unreduced federal employee retirement system pension.
In-service is much the same. However, the caveat there is you have to have 10 years of service to be eligible for it. And the survivor benefit while you're working can't be messed up.
So, see, when you retire, you have to make an election. Do I take survivor benefits to protect my spouse? Yes, or no?
If you die while actively serving in a federal employee retirement system position, the default election is you have survivor benefits and you can't mess that up. So, if you have 10 or more years of service, the survivor benefit in-service is 50% of the pension you've earned to date.
Michael Mason: And then on top of that, on top of your Thrift Savings Plan balance, any federal employees group life insurance there are two lump sum death benefits in the FERS system that are never talked about.
One of them is 50% of base pay at time of death. So, if your base pay was a 100,000, there's another $50,000 of benefits. And then the second one is a moving target. It started out at 15,000 years ago, and it's indexed for inflation. That benefit is like right at 40,300.
So, the person with a $100,000 salary right now, died in service would get $90,300. Their spouse would. Plus, 10 or more years of service, they're going to get some form of survivor annuity.
Let's say it was 20 years of service using the same a 100,000, they've earned a $20,000 benefit. Half of that is 10,000 ongoing annuity cost of living adjusted for that spouse's life.
So, now, you know the things that you're juggling. Do we make the choice to go FERS retirement, disability retirement? Do we try to push on and struggle through and get some leave and die in-service?
John Mason: Well, 90,000, those two FERS in-service death benefits. Maybe like we go back to that example earlier where we had a client who could retire on DI in January and then could retire retirement in June. Well, what's the difference?
Well, we had $90,000 of lump sum benefits in January that the second we retire went poof. Now, there's all those other factors that we had to factor in too, but that 90,000 we hadn't talked about yet. And this 90,000 little rule caveat is that is eligible to be transferred directly to an IRA.
So, that's another thing to consider is do we want that to be in an IRA? Do we want to just take it as lump sum cash?
So, not only do we have to know it's there, then we actually have to think about the best way to receive it. I think we would all probably agree that taking it in cash probably doesn't make sense.
Tommy Blackburn: Well, yeah, I mean, as with most things I would imagine, I suppose there's always a scenario if we put it in an IRA, we can still take it as a lump sum from there. So, at least the IRA gives us a chance to control the taxes from there.
John Mason: And gives us an opportunity if we wanted to do Ben's favorite. I shouldn't make jokes as we're talking about sad topics. But Ben's favorite, he likes doing our Roth conversions.
Ben, if you don't take those lump sum benefits into an IRA, they can never be converted to Roth if you just take it as cash.
Ben Raikes: That is a great reason to go ahead and put that into an IRA. That's right, John.
Michael Mason: So, guys, I want to hit this one really quick because we have an entire episode on estate planning. But it's good news and bad news. It's more bad news than it is good news when you get a terminal illness.
But understand this, we're all dying. Some of us just get advance notice as to when that timeframe's coming. Many of us kick the can down the streets and they don't do the things they need to do.
So, now, you've got a diagnosis. Let's just hit the highlights of what to do in your estate plan. Then I want to tell a one or two stories and then we'll wrap this up.
John Mason: Easy one right off the bat, what you should be doing annually, we review this, Mike, with our clients very frequently, maybe not every single year, but often. It's just confirming beneficiary designations.
It's the world is so fractured right now. And what I mean by that is you may have changed jobs three or four times. You may have hired multiple advisors over the years. There's accounts all over the place.
So, we need to confirm titling on accounts. Am I joint with my spouse? Do I have a successor owner? Do we have the right beneficiaries on file?
Have any of my beneficiaries developed any circumstances that would require me to make updates? Do they have special needs or considerations? Has one of them passed away?
So, just a comprehensive audit or review of ownership and Benny beneficiary are things that should be happening constantly. And definitely after you receive bad news.
Michael Mason: As I think about this, standard rule of thumb is you probably want to minimize anything that goes through the estate. And that's what's controlled by the will.
And you definitely want to make sure that when you can no longer make decisions for yourself, you've given somebody else the power to make those financial decisions and those medical decisions.
So, here's the opportunity to meet with a qualified estate planner to make sure nothing passes via the estate or the will. Everything passes via beneficiary or ownership. Everything will be a much, much smoother for the ones you leave behind.
John Mason: And maybe we just do a quick caveat, Mike, because I think we largely agree that having stuff passed through the estate is probably not good.
So, if we can have direct beneficiaries or joint owners with right of survivorship or what have you, that's most of the time the way we want to go.
I do think there are some states out there where like probate isn't as bad or maybe not as onerous as Virginia.
And I actually worked with one attorney who insisted that the client did not have a rev trust that assets for special needs children, which would be directed to the estate for whatever specific reason.
So, I just want to caveat that there could be state specific reasons why having assets flow through the estate makes sense, but 9 times out of 10, the answer is no.
Ben Raikes: I think just one more piece to add is we talk about working with a qualified estate planner, making sure the beneficiaries are correct, making sure your titling is correct. Powers of attorney obviously are a piece of that as well.
But don't just go to an estate planner that drafts the nicest powers of attorney, the best trust that you can think of, and then just stick those documents under your bed, in the safe and never tell anyone about it.
What we also want to make sure we do with those trust documents and with those powers of attorney is make sure that once we have the trust, if there's assets that need to be titled into it, that we actually make those changes because that's not something that your state attorney is going to do for you.
And if you have a trustee or you have someone acting as your power of attorney or your medical power of attorney, you need to let them know that they have been named as such.
Because if they don't know, what are they going to do, dig through your basement or your attic or under your bed?
Tommy Blackburn: Do they even want this responsibility? They should know before you put them in this position.
And not only should they know that they're going to be in this position, they should see the documents. They should know, well, exactly what this contract is that they've got to administer says.
So, yeah, I 100% agree, they should know and they should have a copy of the documents. They should be aware of what they're going to be asked to do.
John Mason: 50% of the work has been done when you've created your estate plan. So, you have that beautiful binder. It maybe is a huge red book. We would suggest maybe you don't want gigantic red book estate planning documents.
But let's say you have it, you did 50%, Mike, of the work. The other 50% is everything Ben alluded to, which is updating beneficiaries, retitling new deeds for the house, letting your fiduciaries understand where and how and what they're supposed to be doing. So, the estate plan creation is only 50%.
Michael Mason: Guys, as we come to the end of this podcast, I did want to tell hero stories in Mason & Associates and clarence moments are when we give advice, so tremendous.
You see how it changes somebody's life instantly and how that will affect the family going forward. This is what you want from your financial planner. This is what you should seek if you've got a terminal illness and you've got bad news.
I was brought into a family's life years ago. He was dying of a dread disease. Unfortunately, it was of the brain, it was going to be a long battle.
I was brought in after he attempted to end it sooner for the benefit of his family. And the attorneys brought me in, and I looked and there was a term life policy, $500,000, that was due to expire in the next three months.
And I could almost get into this gentleman's head and see what he was trying to do. Let's make this end before this term insurance expires.
He also had a quarter of a million dollar whole life policy and as a certified financial planner, but also a chartered life underwriter, I looked and the whole life policy, guys, had a waiver of premium benefit for disability. And he's had this disease for four or five years.
So, we went to that company and we got four years where the premiums waived. In other words, they stroked a check for $10,000 back to the client.
The term policy that was worth half a million dollars that was due to expire in three months, had a conversion option. It had to be converted to permanent. So, we converted that half a million to permanent.
We used a third of the premiums we got back from the waiver of premium on the other policy, and we made that policy solid before the next anniversary of that term which was now, universal before that needed to be paid.
Blessed for him that he did pass away, but there was an additional $500,000 of life insurance because they got a financial planner versus somebody that's selling a product or managing money.
That's why, gentlemen, I felt this was so beneficial to our clients. It may not be the most uplifting but it is life.
And now, our federal employees and anybody else that listens to the podcast has something to gauge what their advisors should be doing when they get bad news.
John Mason: I think as we close down, Mike, one of the things that has helped me over the 12 years that I've been working with you and Ken, and I'm sure Tommy and Ben feel the same way, is not only being able to kind of like attach myself to your hero stories and clarence moments and relive those experiences with you on the podcast here, through the radio program we used to do.
But stories resonate. And you don't forget rules when you can associate it to someone that you cared about. You don't forget rules when you can associate it to a family that you changed their life.
So, not only are your stories beneficial for prospective clients, not only are the stories beneficial for you to remember what a good job you did.
They're also really good for us as financial planners to remember the research that went in to determining all of this and why that research is so important and why you don't just phone it in and think you know the answer.
Why you always have to keep digging because you'll find the more you dig, that's where you find these hero stories and clarence moments. You don't typically find those scratching the surface of a financial plan.
Tommy Blackburn: Yeah, you got to be willing to look. It's funny when you say the think of the stories. I think we all do. Sometimes we'll get a question from another advisor as we're working as a team.
We've got this case and sometimes you may not remember the rules exactly from the story, but I think we all will say, “Go look at this client's case, this file in the office because I know we came across this before.”
So, it is funny, you're right, you associate a name with a situation and you may not even remember all of the digging you did, but you remember where to go. So, you sometimes just go to an old client file that'll get you back up and running pretty quickly.
If not, you know where to go find other answers. But yeah, John, I agree because I think we all do that. If go look at this client, I remember we've come across this before.
John Mason: I don't remember what the answer is. I just know we put a lot of work in for Joe. So, we should probably go look at that file again.
Michael Mason: And Tommy, you sparked something in my head. And John, I think it'll be time to close it after that.
But you don't want to be going out. If you got bad news and you've got this terminal illness and let's say you have a relationship with somebody that you thought was your financial planner and you trust them, and they're a family friend.
Well, guess what? Maybe they can still be that person that they weren't. Tell them to listen to the Mason & Associates podcast, this one in particular. So, it sparks them to think, who should I be asking what to, what question should I be asking?
So, it doesn't always end with you coming to Mason & Associates, or you firing your financial planner.
I've often said through the radio program for 18 years, I don't understand what other financial planners are doing. The best education they could get is listening to the Mason & Associates radio show. Now, the best education is to listen to the podcast.
John Mason: Well, guys, thank you for another awesome episode of the Federal Employee Financial Planning Podcast.
A hard topic, a heavy topic, but one, Mike, that I really thank you for bringing up because I think I'll speak for the three of us young bucks over here. I don't think it's something that I would naturally gravitate to as a podcast episode topic.
But after doing this with the three of you today, I think it was just very, very well done, very timely. And addressing the elephant in the room in these hard conversations is something we have to do.
So, another great episode of the Federal Employee Financial Planning Podcast. Thanks for being on this journey with us.
We'd love to hear from you, masonfp@masonllc.net . That's masonfp (like financial planning) @masonllc.net. What keeps you up at night? What are your concerns? Send us an email, leave us a comment.
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The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.
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