Planning for Single (unmarried) Clients with and without Children
When single people have children it is generally expected that the children will be the ultimate heirs of the estate of the parent. It is also anticipated that absent certain situations, such as the children being minors, disabled or financially irresponsible, the children will be involved to some extent as a fiduciary in the administration of the parent’s estate and other financial and non-financial affairs. However, without proper planning, the single parent relinquishes control of who handles and manages his/her affairs and how those affairs are handled.
By establishing an estate plan, the parent takes advantage of the opportunity to plan for the following:
- Children that are minors and unable to manage and protect assets for themselves.
- A disabled child or children that need to qualify for public benefits which would be jeopardized in the event an inheritance from the parent is received.
- A child or children who do not have the financial wherewithal to manage and protect their inheritance.
- Protecting a child’s inheritance from creditor claims or in the event of a divorce.
- Unnecessarily bulking up a child’s estate and exposing him or her to estate taxes.
- Preserving assets for future generations.
- Making charitable gifts.
- Nominating agents to handle financial and health related matters in the event of disability or incapacity of the parent.
When single people have no children or the children are not intended to inherit, estate planning might be more complicated, but just as critical.
- Without a valid Last Will and Testament, a decedent is deemed to have passed away intestate. In that case the intestate laws of the decedent’s state of residency will dictate the distribution of the assets of the decedent and the priority of the people entitled to serve as the personal representative (fiduciary) of the decedent’s estate. The intestacy laws address post-death matters and may or may not result in the outcome that the decedent prefers.
- Without a Financial Power of Attorney and an Advance “Medical” Directive, in the event a person loses capacity, a court would be required to appoint a guardian of the assets of the person and a guardian for health and welfare purposes of the disabled person. Guardianship proceedings are costly and the process of having a guardian appointed is time consuming. Furthermore, once a guardian is appointed, the management of the assets and the monitoring of the person of the Ward remain under the scrutiny of the court until the guardianship terminates as a result of the Ward or the Ward regains capacity.
- Some people who have no children or children intended to inherit may decide to bequeath assets to extended family members, such as nieces, nephews, siblings and parents, close friends, or to charitable organizations. Certain beneficiaries, such as nieces, nephews, and close friends, will be subject to Maryland’s inheritance tax at a rate of 10% of the value of what they receive (on both assets they receive under the Last Will and pursuant to beneficiary designations), unless the Last Will provides that he estate should pay this tax.
- People without children to serve as fiduciaries (or who are willing or able to serve) should consider appointing others with whom they have an established relationship with and who are trustworthy and have the experience and capability of handling the responsibilities of being a Personal Representative and/or an agent under a financial power of attorney and/or a medical directive. For example, they could appoint close friends or extended family members. In some cases professionals (attorneys, CPAs, or financial advisors) may be willing to serve as a Personal Representative or an agent on a financial power of attorney. Additionally, the trust department of some financial institutions may be willing to serve as a corporate Personal Representative.
- Asset holdings and how they transfer should be also considered. When assets transfer by beneficiary designation, such as life insurance and retirement benefits, it is important to designate primary and alternate beneficiaries and to review and update beneficiary designations in the event of a divorce. Tax planning is also required in the case of retirement benefits since retirement benefits paid to someone other than a spouse will be subject to minimum distribution requirements set forth in IRS rules and regulations.