Why Federal Retirees Need an Estate Plan
If you have spent a career in federal service, you have accumulated a meaningful set of benefits and assets: a FERS pension, a TSP account, FEGLI life insurance, FEHB coverage, and perhaps Social Security and personal investments. Each of these has its own rules for what happens when you pass away — and without a coordinated estate plan, your wishes may not be carried out as you intend.
Estate planning is not just for the wealthy. It is about making sure the right people receive the right assets, minimizing the tax and legal burden on your family, and ensuring that your financial legacy reflects your values.
Wills and Trusts: The Foundation
A will is the most basic estate planning document. It directs how your assets should be distributed after death, names an executor to manage the process, and, if you have minor children, designates a guardian. Without a will, your state's intestacy laws determine who receives your assets — and that may not align with your wishes.
A revocable living trust offers additional benefits:
- Avoids probate: Assets held in a trust pass directly to beneficiaries without going through the public, time-consuming probate process
- Privacy: Unlike a will, which becomes a public record during probate, a trust remains private
- Incapacity planning: If you become unable to manage your affairs, a successor trustee can step in immediately without court intervention
- Control: You can specify conditions for distributions, such as age requirements for younger beneficiaries or protections for beneficiaries with special needs
For most federal retirees with a home, TSP savings, and other assets, a trust-based estate plan provides meaningfully better protection than a will alone.
FEGLI: Understanding Your Options
Federal Employees Group Life Insurance (FEGLI) is a significant asset, but its cost increases dramatically as you age. FEGLI consists of several components:
- Basic Insurance: Equal to your salary rounded up to the nearest $1,000 plus $2,000. In retirement, you can choose to continue it at full cost, reduce coverage at age 65 to 25% of the face amount at no cost, or elect 50% or 75% reductions.
- Option A (Standard): $10,000 in additional coverage. Reduces to $2,500 at age 65 and becomes free.
- Option B (Additional): One to five times your annual salary. Coverage decreases by 2% per month starting at age 65 unless you elect full cost continuation. This option becomes extremely expensive after retirement.
- Option C (Family): Coverage for your spouse and dependent children.
Many retirees are shocked to discover how much Option B costs after age 65. A common strategy is to replace FEGLI with private term or permanent life insurance while you are still healthy enough to qualify, then reduce or cancel FEGLI options that have become cost-prohibitive. The savings can be substantial — often hundreds of dollars per month.
Beneficiary Designations: The Most Overlooked Element
Beneficiary designations on your TSP, FEGLI, and other retirement accounts override your will. This is a point that cannot be stressed enough. If your will says everything goes to your current spouse, but your TSP beneficiary form still lists an ex-spouse, the TSP funds go to the ex-spouse. The will does not matter.
Review and update your beneficiary designations on:
- TSP account (Form TSP-3 or online at tsp.gov)
- FEGLI (Standard Form 2823)
- FERS pension (survivor benefit election at retirement)
- IRAs, 401(k)s, and other retirement accounts at each custodian
- Life insurance policies outside of FEGLI
- Bank and investment accounts (payable-on-death or transfer-on-death designations)
Update these designations after any major life event: marriage, divorce, birth of a child, or death of a beneficiary. This five-minute task can prevent years of legal battles and unintended outcomes.
Estate Tax Considerations
The federal estate tax exemption for 2026 is approximately $7 million per individual (the higher exemption from the Tax Cuts and Jobs Act sunsets at the end of 2025). For married couples who plan properly, the effective exemption can be doubled using the portability election.
Most federal retirees will not owe federal estate tax, but state estate taxes are another matter. Several states have exemption thresholds significantly lower than the federal level. If you live in or own property in a state with its own estate tax, your estate plan should account for this.
Even if your estate is below the exemption threshold, proper planning can still save your heirs money by:
- Avoiding probate costs and delays
- Minimizing income taxes on inherited retirement accounts
- Taking advantage of the step-up in basis for appreciated assets
- Using gifting strategies during your lifetime to reduce the taxable estate
Powers of Attorney and Healthcare Directives
A complete estate plan includes more than just asset distribution. You also need:
- Durable Financial Power of Attorney: Authorizes someone you trust to manage your finances if you become incapacitated. Without this, your family may need to petition a court for guardianship — an expensive and time-consuming process.
- Healthcare Power of Attorney / Healthcare Proxy: Names someone to make medical decisions on your behalf if you cannot communicate your wishes.
- Advance Directive / Living Will: Documents your wishes regarding life-sustaining treatment, resuscitation, and organ donation.
These documents are especially important for federal retirees because managing your annuity payments, TSP account, FEHB enrollment, and other federal benefits requires someone with legal authority to act on your behalf.
Creating Your Estate Plan
Federal retirees should work with an estate planning attorney who understands federal benefits. Key steps include:
- Take an inventory of all assets, including federal benefits, and their current beneficiary designations
- Determine your goals — who should receive what, and under what conditions
- Establish a will or trust and fund the trust properly by re-titling assets
- Update all beneficiary designations to align with your overall plan
- Execute powers of attorney and healthcare directives
- Review FEGLI coverage and consider whether private insurance is more cost-effective
- Review and update your plan every three to five years or after any major life event
The peace of mind that comes from a well-structured estate plan is one of the most valuable gifts you can give yourself and your family.