While discussions for estate planning often focus on married couples, estate planning for a single person is equally as important. In many instances, a single person may need to do things differently and the consequences of not having a well-coordinated plan can create real problems.
Most single people own assets in their names individually and may also own some assets as a joint tenant with right of survivorship. Other assets, such as life insurance or retirement assets, will be distributed at death according to the terms of their beneficiary designations.
How these varying assets are titled and how the beneficiary designations are prepared will directly impact who will get control of the assets and how they’ll be distributed at the individual’s death.
For a single person, the default under state law usually provides that assets are passed on to their closest relatives.
If an individual dies without a will (known as intestate), possessions are distributed according to the default laws of his or her state. Under these state laws, a married individual’s assets typically go to their spouse or children. For a single person, however, the default under state law usually provides that assets are passed on to their closest relatives (e.g. children, parents, siblings). If there are no relatives alive, assets may go to the state.
To avoid having the state decide the fate of your assets, it is imperative that you put an estate plan in order to ensure your wishes are carried out:
Estate Planning Essentials
Here is a brief guide to preparing essential estate plan documents providing direction on how your estate should be distributed and who should be responsible for making important decisions on your behalf — if you become mentally or physically incapacitated or for your estate following your death.
A will: Your will is the centerpiece of your estate plan and allows you to distribute assets as you see fit; name guardians for minor children and assign an executor to guide your estate through probate, the court-supervised process of accounting for your assets.
The executor you name should be someone trustworthy and not easily swayed; if you don’t have close relatives, choose a close friend or an objective third-party, such as an attorney.
When preparing your will, give some thought to how your home or personal property should be distributed. Investments are easily divided between beneficiaries, but a single person may have very specific wishes about who should inherit his or her home or personal property with special sentimental value.
Durable power of attorney: This document lets you appoint someone to manage your day-to-day financial and personal affairs even if you become unable to do so for yourself. A married person often names a spouse for this role; a single person should select a trusted friend or family member with strong financial acumen.
Medical provisions: A health care directive speaks to your medical wishes if you are unable to communicate them yourself. A medical power of attorney names an individual who is authorized to discuss and make decisions on your treatment and care. When selecting someone for this role, remember that it doesn’t have to be the same person as your financial power of attorney. Take care to choose a trusted individual who knows you well and who will respect your wishes regarding medical care and life-support decisions.
Updated beneficiary designations: These will determine who will receive your benefits including life insurance and retirement plan assets. So be certain the designation forms are up-to-date, coordinated with your estate planning documents and best reflect your wishes.
Typically, federal estate taxes don’t apply to a single person until the value of your estate exceeds the federal estate tax exclusion. In 2015, that’s $5.43 million minus any taxable gifts you’ve made during your lifetime. If you are widowed, your federal exclusion amount may include the unused estate tax exclusion of your deceased spouse (if your spouse died after 2010 and this is indicated in his or her estate tax return).
Recently, the federal estate tax exemption has been rising (and it’s now indexed for inflation so the exclusion amount will increase each year). As a result, for many single individuals, estate tax planning has shifted to the state side. Roughly half of the states now impose a state-level estate tax. Consequently, it’s important to speak to an estate planning attorney to determine if a state estate tax would apply to you.
Advice for Transferring Assets
When planning for the distribution of your estate, there are important tools to keep in mind, such as a trust, which holds assets for the benefit of a third-party beneficiary. Since a single person determines the right tools to use for effectively creating an estate plan to properly dispose of his or her assets, it’s important that you also coordinate that planning with the way your assets are titled and the way your beneficiary designations are prepared.
Speak to an Estate Attorney and Financial Adviser
If you don’t have an estate plan that speaks to asset transfer; business and financial decisions and health care directives, meet with an estate planning attorney and financial adviser. These professionals will help you craft a comprehensive plan tailored to your situation to ensure that your assets will be distributed the way you intend.