Estate planning is an important aspect of life, but many single people often overlook it, thinking it’s only relevant for those with families. However, regardless of your relationship status, you need to have an estate plan in place to protect your assets, provide for yourself in case of incapacity, and ensure your wishes are carried out in the event of your death.
Why Estate Panning is Important for Single People
Estate planning is crucial for single people because they may not have a spouse or children to rely on. This means that if something were to happen to you, such as an illness or injury, your assets may not be distributed according to your wishes. An estate plan helps you outline how you want your assets to be handled in case of an emergency, as well as after your death.
Additionally, an estate plan can help you avoid the probate process, which can be time-consuming and expensive. Probate is the legal process through which a deceased person’s assets are distributed according to their will. Without a will or other estate planning documents, your assets may be distributed according to state law, which may not align with your wishes.
Estate Planning Essentials for Single People
The first step in estate planning for single people is to determine what assets you own and what your goals are for those assets. You’ll want to account for all of your assets, including personal property, real property, investment accounts, and digital assets (which we’ll talk about later).
Next, you’ll want to consider who you want to handle your affairs in the event of your death or incapacity. This person could be a trusted friend or relative, or even a corporation like a bank’s trust department. No matter who you choose, you should only select someone who you know has your best interest in mind and who has strengths in financial and property management.
Once you have a clear understanding of your assets and who you want to handle your affairs, you can start putting together your estate plan. The essential estate planning documents for single people include:
- Will: A will is a legal document that tells everyone what you want to happen to all your stuff after you’re gone. Even if you don’t have a ton of assets, it’s still a good idea to have a will. That way, everyone knows exactly how you want things to be divided up when the time comes.
- Power of attorney: A power of attorney (POA) is a document that lets you choose someone you trust to take care of your finances if you can’t do it yourself. This could be because you’re sick or hurt, or just because you’re traveling and can’t keep an eye on things. Having a POA in place can give you peace of mind knowing that your financial affairs are in good hands.
- Advanced directive: An advanced directive, also known as a living will, outlines your wishes for medical treatment in case you’re unable to make decisions for yourself. This document helps ensure that your wishes are carried out if you’re in a coma or suffering from a terminal illness.
- Digital asset plan: A digital asset plan is a relatively new aspect of estate planning that covers your digital assets, such as online accounts, social media profiles, and digital files. This plan outlines what should happen to these assets in the event of your death or incapacity.
Each of these documents is more complex than they appear, so we’ll discuss more about each of these estate planning essentials, and why it’s important to have them in place.
A will is a fancy piece of paper that says what you want to happen to all your stuff after you’re gone. Even if you don’t have a ton of assets, it’s still a good idea to have a will. That way, there’s no confusion about what you wanted and your stuff gets divided up the way you wanted. If you don’t have a will, the state will decide what happens to your stuff, and that might not be what you had in mind.
When you make your will, you get to choose someone to be in charge of carrying out your instructions. This person is called an executor and they can be a close friend or family member, or even a corporation like a bank’s trust department. You also get to say how you want your assets to be divided and who you want to give special gifts to.
Just remember, your will isn’t set in stone. Life changes, and your will should change with it. If you get new stuff or change your mind about what you want, be sure to update your will so it still reflects your wishes.
Power of Attorney
A power of attorney (POA) is a handy document that lets you choose someone you trust to take care of your money stuff if you can’t do it yourself. Maybe you’re feeling under the weather, or maybe you’re traveling and can’t keep an eye on things. No worries, your POA has got your back!
When you’re picking someone to be your POA, it’s important to choose someone you trust and who is responsible with money. You’ll also need to tell them exactly what they’re allowed to do with your money. For instance, you might give them permission to manage your bank accounts, pay your bills, or sell property. Just make sure you pick the right person and that they know what you want them to do.
An advanced directive, also known as a living will, outlines your wishes for medical treatment in case you’re unable to make decisions for yourself. This document helps ensure that your wishes are carried out if you’re in a coma or suffering from a terminal illness.
When creating your advanced directive, you’ll need to specify the types of medical treatments you want to receive or decline, such as life support or resuscitation. You’ll also need to appoint a healthcare proxy, who is responsible for making medical decisions on your behalf if you’re unable to do so.
Digital Asset Plan
A digital asset plan is a newer part of estate planning that covers all your online stuff, like your social media profiles, cryptocurrency, digital files, and online accounts. This plan makes sure that your digital assets are taken care of in case something happens to you.
When you’re making a digital asset plan, you’ll need to say what should happen to each of your digital assets. For example, maybe you want your social media accounts to be deleted when you’re gone, or maybe you want your digital files to be given to someone you trust. And don’t forget to appoint a digital executor! They’re the ones who will make sure your wishes for your digital assets are carried out.
The Role of a Trust in Estate Planning
A trust is a legal arrangement that allows you to transfer assets to a trustee, who then manages those assets for the benefit of one or more beneficiaries. Trusts can be useful in estate planning for single people because they offer several advantages, such as avoiding probate and providing for beneficiaries who may not be able to manage their own finances.
There are several types of trusts, including revocable trusts, which allow you to change the terms or revoke the trust entirely during your lifetime, and irrevocable trusts, which cannot be altered once established. Let’s explore some of the different types of trusts and their benefits.
Revocable Living Trusts
A revocable living trust is a type of trust that allows you to transfer ownership of your assets to a trust, while still retaining control over those assets during your lifetime. This type of trust is often used to avoid probate, as the assets in the trust pass directly to your beneficiaries without the need for court supervision.
An irrevocable trust is a type of trust that once it’s set up, you can’t change or cancel it. This kind of trust is often used for estate and tax planning as it can help you reduce estate taxes and protect your assets from creditors. It can also be used to take care of someone with special needs, like a child or an elderly parent.
But, because you’re giving up control over the assets in an irrevocable trust, it’s important to think carefully about your goals and priorities before setting one up. It’s also a good idea to work with an estate planning lawyer to make sure the terms of the trust match your goals and that your wishes will be followed.
In the first two parts of this article, we explored the importance of estate planning for single people, the essential estate planning documents, and the role of a trust in estate planning. In this part, we’ll discuss some of the challenges single people may face in estate planning and how to address these challenges.
Providing for Children and Other Dependents
One of the biggest challenges single people may face in estate planning is providing for children or other dependents. If you have children, you’ll need to appoint a guardian for them in the event of your death. This person will be responsible for raising your children and making decisions on their behalf until they reach the age of 18.
If you have other dependents, such as an elderly parent or a disabled sibling, you’ll need to make arrangements for their care in the event of your death. This could include setting up a trust to provide for their financial needs or finding a trusted friend or family member who is willing to take on this responsibility.
Avoiding Estate Taxes
Another challenge single people may face in estate planning is avoiding estate taxes. Estate taxes are taxes that are levied on the transfer of property at death. The tax rate and exemption amount can vary depending on the state in which you live and the size of your estate.
To minimize your exposure to estate taxes, you may want to consider strategies such as gifting assets to your heirs while you’re still alive, setting up a trust, or taking advantage of the estate tax exemption. It’s important to work with a qualified estate planning attorney or financial advisor to understand the estate tax laws in your state and determine the best strategy for minimizing your exposure to estate taxes.
Dealing with Blended Families
For single parents who have kids from previous relationships, estate planning can get tricky. When you have a blended family, it’s crucial to make sure everyone knows your plans for your assets if something happens to you. This can prevent any conflicts and make sure your assets go where you want them to. One solution to this problem is to create a separate trust for each child. This way, you can ensure each child gets a fair share of your assets and have a clear plan for their financial future.
Planning for Long-Term Care
Thinking about long-term care is another challenge single people may face in their estate planning journey. As we age, the chances of needing long-term care go up, and it can be expensive. To prepare for this, it might be a good idea to consider getting long-term care insurance. This type of insurance covers a variety of long-term care services like home health care, assisted living, and nursing home care. You could also think about setting aside some money specifically for long-term care, or investing in assets that could be used to pay for it if necessary.
Working with a Professional
In simple terms, estate planning is a big deal for single people, so it’s a smart idea to work with a pro to make sure everything is taken care of. An attorney or financial advisor can guide you through the process, understand your goals and needs, and create a custom plan for you. Remember, estate planning isn’t just for the wealthy or for those nearing the end of their life. It’s important for everyone, no matter your age or the size of your estate. In this series, we covered the essentials of estate planning for single people, the crucial documents, the benefits of a trust, and some challenges single people may face. Now, let’s take a look at some more important things to keep in mind.
Stay Up to Date
Estate planning is not a one-time event. Your life and your priorities may change over time, and it’s important to stay up to date with your estate plan. You should review your estate plan at least once a year to ensure that it still reflects your wishes and that your beneficiaries and executors are up to date.
Additionally, laws and tax regulations may change, so it’s important to stay informed and make any necessary updates to your estate plan. You can work with an estate planning attorney or financial advisor to keep your estate plan current.
Organize Your Estate Plan
It’s a good idea to keep all your estate planning documents, like your will, trust, and financial power of attorney, in a safe spot where they can be quickly found in case anything happens to you.
Also, putting together a file or binder with information about your assets, debts, and important contacts, like your estate planning attorney and financial advisor, can really make things easier for the person handling your estate after you’re gone. This way, they can make sure your wishes are carried out without any hiccups.
Communicate Your Wishes
It’s crucial to let your executor and successor trustee know about your wishes and make sure they understand their responsibilities.
It’s also a good idea to have an honest conversation with your loved ones about your estate plan. This can help avoid conflicts and misunderstandings and make sure your wishes are followed just the way you planned.
Estate planning is a must for everyone, no matter your age or the size of your assets. By taking the time to think about what’s important to you, working with a professional, and communicating your plans, you can make sure your assets are protected and your wishes are honored. Whether you’re just starting or have been estate planning for a while, it’s never too late to take control of your financial future. Call Hunter Sargent, PLLC today to discuss your options with our experienced Denton estate planning attorneys.