A common misconception about financial planning is that if you’re single, you don’t need an estate plan. However, estate planning is critical for everyone, regardless of whether they’re married or not.
Without a basic estate plan, you could die intestate. In this case, the distribution of your property will be determined by state law. If you have children, your assets will probably be divided evenly among them, but if you don’t, your property might end up being distributed in ways that you wouldn’t want.
Three Estate Planning Documents
If you’re unmarried, you should concentrate on three main estate planning documents: a last will and testament, living will and financial power of attorney. The last will and testament will provide detailed instructions for how all of your assets should be distributed after you die. For example, you might want your assets to go to family members, close friends or charitable organizations you support.
One strategy is to use a charitable remainder trust (CRT) or charitable lead trust (CLT) to distribute assets to charitable organizations after you die. With a CRT, you’ll place assets in the trust during your lifetime and receive income from the trust while you’re living. When you die, your designated charity (or charities) will receive whatever is left.
A CLT is the opposite of a CRT. Income will be distributed to your designated charity (or charities) for a certain number of years while you’re alive. When you die, your designated beneficiaries will receive whatever assets are remaining in the trust.
Planning for Incapacity
A living will enables you to provide detailed instructions for how medical and life-sustaining decisions should be made if you are incapacitated and unable to make them yourself. Meanwhile, a financial power of attorney will designate an individual to handle your financial affairs if you’re incapacitated and can’t do this yourself.
When setting up a living will, be sure to designate someone who knows you well and will follow your wishes to make medical decisions for you. You can also indicate who can and cannot visit you during an extended hospital stay.
The same thing goes for the financial power of attorney. Give careful thought to who will be willing and able to take care of your financial matters in the most responsible way. If your finances are relatively complex, make sure the person you designate is capable of understanding what needs to be done. Walk this person through your finances and make sure he or she has access to important financial documents, including the financial power of attorney document itself.
Choosing an Executor
Another important estate planning task for unmarried individuals is selecting an executor for the estate. This individual will be responsible for ensuring that all of the instructions in your last will and testament regarding asset distribution are fulfilled according to your wishes. In addition, your executor will handle all the financial details associated with final settlement of your estate.
Many unmarried individuals name a family member or close friend as their executor. However, your executor’s responsibilities can be complex and time-consuming, especially if your estate is large and complicated. If you don’t know someone who you believe would be able to handle this responsibility, you might decide to designate a corporate executor.
Although a fee is usually involved, this role is usually filled by a bank or trust company that’s experienced in settling complex estates. A corporate executor must follow strict fiduciary regulations to ensure that all decisions are made in the best interest of your estate and according to your detailed instructions. Choosing a corporate executor helps ensure that your estate plan is executed objectively and without any bias or emotion.
Make Plans Now
If you’re unmarried, don’t make the common mistake of thinking that estate planning isn’t important for you. Plan now to meet with an estate planning attorney and financial advisor to talk about these and other important estate planning documents.
Give us a call if you have questions about estate planning or need help creating an estate plan.