5 Important Considerations for Single People
A common mistake made by single people is failing to implement a solid estate plan. However, estate planning is vitally important for everyone, even if you don’t have a spouse or children who depend on you for their financial well-being. While you may not have concerns related to custody of minor children and the division of assets, you may not always be in a position to act on your own behalf. Examples include but are not limited to:
- Short-term incapacity due to an accident and a subsequent medical procedure is required
- Diminished mental capacity caused by an acute medical condition
- You travel out of the country and are unable to return to the U.S. because of a visa issue or because a conflict breaks out that makes it unsafe to leave the country
Therefore, you should take steps to protect yourself and delegate both financial and healthcare-related decisions to someone you trust.
The following tips can help you get started.
#1 – Establish a durable power of attorney.
A durable power of attorney is a legal document that designates an individual to make financial decisions on your behalf should you become incapacitated and unable to do so on your own. If you become incapacitated without a durable power of attorney, your loved ones will need to go before a judge to request authority to handle your financial affairs. The probate court must then hold a public hearing to appoint an agent to act on your behalf. This can be a lengthy and expensive legal process.
Once the court appoints an agent to handle your finances, you no longer have a right to manage them on your own. And the designated agent will likely need to post a bond, which serves as insurance in case he or she steals or mishandles your assets. The agent will also need court approval to make certain financial transactions on your behalf.
All of this can be avoided with a properly executed durable power of attorney. Not only can this document save your loved ones from a lot of headaches (as well as time and money spent) but it can also help ensure the person managing your assets is the person you would choose to do so.
#2 – Establish a healthcare power of attorney.
Similar to a durable power of attorney, a healthcare power of attorney designates an individual to make medical decisions on your behalf should you become incapacitated and unable to do so on your own. This document spells out exactly what types of interventions you agree to and provides authority for a loved one to give permission to carry out those wishes.
#3 – Establish a revocable living trust.
A revocable living trust is a legal entity that owns and transfers assets to designated people and institutions per your wishes. A trust includes the following roles:
- A grantor who creates the trust and assigns assets that are to be owned by the trust
- A trustee who manages the trust in accordance with the rules outlined within the trust
- A beneficiary who receives assets from the trust (asset transfer to beneficiaries can occur both during the lifetime of the grantor and after the grantor has passed away)
Naming yourself as trustee of your own trust allows you to maintain control of your assets and how the assets are utilized. Also, as trustee you can update provisions within your trust as laws change and your personal circumstances evolve. To adequately plan for future incapacity, you should designate successor trustees that can act on your behalf until you’re ready to manage your own financial affairs.
Leveraging a revocable living trust allows for a speedy transfer of wealth to your designated beneficiaries. Also, unlike a will that is submitted to the state to execute the probate process and becomes part of public record, trusts are private instruments used to keep asset listings and wealth transfer decisions out of the public eye. If you’d prefer the details of your financial matters remain private while you’re living and after your life has ended, a trust is a great way to accomplish this goal.
#4 – Establish a will.
For individuals that elect not to create a revocable living trust, a last will and testament is an essential estate planning document that everyone should have in place, regardless of marital status. Not only does a will distribute assets according to your wishes but it can also be structured to discourage challenges to your documented wealth transfer wishes.
Within your will, you’ll want to designate an executor to settle your estate, ensure your debts are paid and distribute your assets according to your wishes.
Without a will in place, the court will appoint an executor who will distribute your estate according to your state’s succession laws. For unmarried individuals with no children, succession laws typically distribute assets first to the deceased’s parents then to other relatives, such as aunts and uncles or cousins. If you have no heirs and no will, your assets will become property of the state.
To prevent your hard-earned assets from being handed over to the state, it’s important to have a record of your wishes formally documented in a will.
#5 – Consider your charitable giving goals.
If your estate planning goals include supporting charitable causes, it’s important to make your wishes known. The easiest way to make donations is by naming a charitable organization as a beneficiary within your trust or will.
If you wish to support an organization over an extended period of time, you may want to establish a charitable trust, which is an irrevocable, tax-exempt trust with an income beneficiary during the donor’s life and a charitable beneficiary upon the donor’s death. There are two main types of charitable trusts:
- Charitable remainder trust (CRT) – A CRT allows you to select an income beneficiary, trustee and remainder trustee that is a charitable organization. The trustee has the power to invest and reinvest the assets in the trust. The income beneficiary (typically you as the donor) receives an annual income from the trust. When the donor dies or experiences another triggering event, the assets still held in the CRT pass to the designated charitable organization.
- Charitable lead trust (CLT) – A CLT is, essentially, a CRT in reverse. A CLT provides a charity with income for a period of time, and a named individual receives the remainder of assets in the trust when the income period ends.
Could you use some help getting your estate plan in order? Creative Planning is here for you. Our affiliate, Creative Planning Legal, is one of the largest estate planning law firms in the country, with attorneys licensed to practice in a variety of states. Regardless of your specific situation, we can help prepare a custom estate plan to meet your needs. To take the first step, schedule a call with a member of our team.