Estate Planning for Single Parents - Top 5 Things to Think About
As a single parent, preparing your estate planning documents should be a high priority. The need for estate planning becomes even more critical if there is no second parent to provide care and financial support. Thoughts such as, “What will happen to my children if I die or become incapacitated?” or “My children aren’t in a position to be managing assets they inherit from me!” are just a few that may come to mind for a single parent. Having a well-thought out estate plan in place will provide you with a sense of security and comfort knowing that your children will be cared for should something happen to you. Following are five key things every single parent should consider:
- WHO WILL TAKE CARE OF YOUR CHILDREN IF YOU DIE OR BECOME INCAPACITATED? Deciding who will take care of your children if you die or become incapacitated is perhaps one of the most challenging questions you will ever face as a single parent. If you fail to name a guardian for your child and die before your child becomes an adult, your child could be placed in the care of a court-selected guardian rather than the person you would have chosen. In selecting a guardian you should be thinking about whose parenting style and values most closely align with yours and who is the most able to take on the responsibility of caring for the child.
- WHO WILL RECEIVE YOUR ASSETS? This is a critical question to be asking if you do not have estate planning documents prepared or had them prepared before major life events such as divorce or the birth of your children. Now, as a single parent, you want to ensure that your children will be the ones receiving your assets, and you will want your estate planning documents to reflect this. Note that beneficiary designations on retirement accounts and life insurance policies will control where those assets go to, not your will or trust.
- WHEN AND HOW WILL YOUR CHILDREN RECEIVE YOUR ASSETS? When a child receives an inheritance, including assets such as life insurance or retirement account proceeds, the child generally must be given authority to control his or her own property upon turning age 18 or 21. For many single parents this is a potentially scary thought! Naming a trust as a beneficiary allows you to decide on distribution terms and select a capable person to serve as trustee to make those distributions. This can help protect your assets and ensure they are used properly for your child’s support.
- SHOULD YOU CONSIDER A REVOCABLE TRUST? A revocable trust, also called a “living trust,” allows you to manage your assets while you are alive and able, but upon your death or incapacity, the trustee you name will administer your assets and make distributions to your children. A properly funded revocable trust will enable you to avoid probate, which may be crucial depending on your assets.
- DO YOU NEED LIFE INSURANCE? As a single parent, you are likely a part of the population that has a significant need for life insurance. Having enough insurance in place could enable your young children to maintain the lifestyle to which they are accustomed, finish college, and become financially independent on their own. Think about this: the cost of raising a child born in 2013 to the age of 18 is just over $245,000, and that figure doesn’t even take into account the cost of college!