Estate planning is especially important for single parents with children. While every parent wants to provide for their children, it’s even more important for single parents, who have no other adult to step in, should the family suffer a crisis.
For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents.
But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child attains the age of majority the court must distribute the entire inheritance in one lump sum.
If you are a single parent with minor children, here are five things you should be doing:
1. Make a list of assets and debts and decide how you want to distribute your property.
2. Choose a child guardian and property guardian. After choosing a guardian, create the documents to explain your choice of guardian. See letter to child guardian.
3. Meet with an Alaska estate planning attorney to discuss documents such as a will, trust, power of attorney, and advance directives.
4. Meet with a financial planner regarding beneficiary designations on IRAs, 401Ks, college savings plans, and life insurance policies. Ensure provisions are in place to provide for your children financially.
5. Buy life insurance or increase death benefits under existing policies if necessary. If you have minor children, obtain estate planning advice on naming beneficiaries of your life insurance policies to make sure the proceeds are used to support your children.
You may also want to establish a durable power of attorney. If you should become incapacitated in any way, a durable power of attorney would continue to be effective.
Single Parent Estate Planning
If you are single with children, you will want to address the essential issues for parents, such as naming a guardian, making a will, deciding whether you need a living trust, naming beneficiaries on retirement accounts, buying life insurance, how to set up a pay on death account, and appointing an agent to manage your financial affairs if you become incapacitated.
Estate Planning Trusts
If you have minor children, a child with special needs or a financially dependent adult child, choosing the right type of estate planning documents is extremely important. In these situations, the best solution may be to create an estate planning trust to provide for your child’s financial needs. An Alaska estate planning attorney can advise you on the advantages and disadvantages of various types of trusts.
Make Sure Children Are Not Separated From Pets
After the loss of a parent, a child relies on all that is familiar. This includes family members, friends, teachers, and pets. If your child is attached to your family pets, you may want to ensure your pets will still be in his or her life after you are gone. Since many people feel as close to pets as other family members, being separated from a pet after the loss of a parent can traumatize your child. For steps you can take, see pet owners estate plan.
Naming the Right Beneficiaries
While most single parents naturally want their property to pass to their children when they die, you should not leave property directly to minor children. To ensure money and property you leave your children is immediately available to take care of them and is not consumed by attorneys’ fees, make the right beneficiary designations.
Do not name a minor child as beneficiary of life insurance. Life insurance companies will not pay proceeds to minor children and will require an expensive court process to appoint a guardian for the child’s property. In the meantime, the proceeds will be unavailable to pay your child’s living expenses. To avoid this and ensure proceeds are immediately available to support your child, name your living trust as beneficiary of the life insurance. The trustee can manage assets in the trust for your child’s benefit.
Determining who to name as beneficiary of your IRA involves complicated tax planning issues. As a single parent, your options for IRA beneficiary choices include your children or your living trust. There are pros and cons to each choice. Consult an experienced Alaska estate planner and a tax professional who both understand your estate planning objectives.
529 College Savings Plans
If you have a college savings plan, you will need to choose a successor owner on the account. That person should be someone you trust to use the funds solely for your child’s education.
If you die or become incapacitated, the successor owner has the right to do anything he or she wishes with the account, including change beneficiaries or withdraw the funds. You might name the same person you chose as property guardian and trustee of your living trust to be the successor owner of the college savings account.
In conclusion, estate planning is something all parents should do, but it is especially important for single parents. Putting off these decisions leaves the welfare of your children in a vulnerable position. An estate plan can give you a great deal of peace of mind. It can also make the transition much easier for your children, should an unexpected death occur. If you have questions about estate planning, check out one of our free workshops. You’ll have a chance to listen to a presentation and get your questions answered. You won’t be planning for your death. You’ll be planning for the life your family will have after you are gone.