When you are single with no children, estate planning becomes even more important because you don’t have the benefits of deferring estate taxes via your spouse or children and it is more likely that you wouldn’t be able to establish your final wishes.
Without any planning, a single person’s estate will pass to children, if any, then to parents who are still living. If no parents are living then the estate will pass to living siblings and so forth down the line to even more distant relatives, even if a single person’s stated and known intent was for property to pass to a friend or charity. Cohabitating (unmarried) couples, regardless of the length of the relationship, take nothing from each other’s estate without proper planning. Additionally, for estates that would be subject to estate tax, a single person cannot take advantage of tax laws that permit married people to leave assets of unlimited value to spouses free of estate tax. Even if a single person has no interest in who inherits property upon his or her death, on a very real and personal level, if a single person becomes incapacitated while still alive, a judge may appoint a relative or even a stranger as the guardian or conservator with authority to make all decisions, including those related to finances and medical care.
In an effort to avoid these unfortunate and unintended results, a single person should, at a minimum, have in place the following estate planning arrangements:
Durable Power of Attorney: A durable power of attorney can be made immediately effective or only effective when the single person is deemed by his or her regular physicians, in writing, to be physically or mentally incapacitated to make decisions regarding his or her affairs, including property, finances and health care. Through the durable power of attorney an individual selects and names the individual(s) who will be given the important duty and responsibility to make the required decisions. A durable power of attorney can be limited or give broad discretion, which is most common, for the attorney-in-fact to make all necessary and appropriate decisions incident to ownership and management of the property and affairs of the incapacitated individual. Without a durable power of attorney, a single person risks having unwanted relatives or worse, a total stranger appointed by the court, making these important decisions.
Advanced Medical Directive: Also referred to in many states as a “living will”, an advanced medical directive is a legal directive in which an individual, while healthy and competent, states his or her desires concerning medical treatment to be administered or withheld in the event an individual develops a terminal medical condition or is permanently unconscious and recovery is not expected. The advanced medical directive can expressly limit treatment received, although Colorado does not permit a directive for euthanasia or “assisted suicide.”
Last Will or Revocable Living Trust: The last will is a basic estate planning instrument where the individual making the will (the “Testator”) appoints a person of their choosing as the Personal Representative (or “Executor”) to settle the Testator’s estate and disposition of property. A last will can direct specific property to named individuals, charities, or family members. A will may provide for the outright distribution or establish trusts for assets to pass as appropriate to beneficiaries. A revocable living trust is another estate planning instrument which can direct the distribution of a single person’s assets, is often used to avoid probate, and can be established and managed during the person’s lifetime. If there is a probability of a relative contesting or challenging a will, the living trust may be a consideration.
Update Beneficiary Designations: Admittedly, most single people do not see the need for life insurance, but many working single people have retirement plans like 401(k) accounts and bank accounts which provide direct payment to named beneficiaries. Designated beneficiaries must be kept current and updated, especially where there is a divorce, death of a loved one or birth of children.
These planning strategies, along with several other estate planning measures, can be implemented by single persons to minimize estate tax impact, transfer wealth, protect property interests and provide for one’s future care. Estate planning is not a “one size fits all” proposition.
Please contact us to discuss the best plan that suits your particular needs.