How is Estate Planning Different for Single Parents?
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Parenting is both a joy and an ocean of responsibilities. Parents constantly worry about the well-being of their child, in their presence as well as when they are no longer around. Estate planning is one important measure to ensure the well-being of your children in case of your demise, incapacity, or disablement. Such situations massively impact the lives of children, more in the case of single parents, as these kids do not have another support system to rely on. Estate planning for single parents varies greatly in comparison to co-parenting families. Hence, for a single parent, the responsibility increases manifold to ensure that the estate plan is updated and implemented to favor the child.
Here is how a single parent can secure the child by efficient and prudent estate planning:
1. List all personal and financial details
Before beginning estate planning, the first step that you need to take is to write down all personal details such as names of financial and legal advisors, health advisories, emergency contacts, etc. It is also essential to make a discreet list of financial details such as bank accounts including the name, account number, password, etc. of the account owner. Moreover, one must also list all digital assets such as investment accounts, websites, blogs, and even social media accounts, and write their IDs and passwords to ensure that they can be deactivated, directed, or used as per your wish. Keep this information safe and protected while you are around but ensure your children or personal representative can access it in your absence.
2. Set up a trust and appoint a trustee
The most important thing a single parent must do while planning finances is to create a trust. The ideal choice in such cases would be to set up a revocable living trust, which would provide financial benefits till you are alive and will go on to secure the lives of your children in your absence. This type of trust is very beneficial for single parents whose children are minor or too young to manage assets on their own. Along with creating a trust, it is very critical to appoint a reliable trustee who can ensure the distribution of the trust to the right beneficiaries. The trustee will be responsible for seeing that the trust money is used as per your desires. Trusts can be helpful to cover the costs of college fees, food, house rent, business expenses, etc. If a trustee is not appointed, there can be extreme legal complications, enforcing the law to appoint a trustee on your behalf, which may not align with your choice. In addition to this, you must also make sure to explicitly state how you want the trust funds to be used, the level of discretion allowed for the child, and specify permissions, age restrictions, etc. clearly.
3. Nominate a reliable guardian
It is essential to think ahead and plan for uncertainties. For single parents, this becomes even more essential due to a lack of another shoulder to share the responsibility with. Hence, the decision to nominate a guardian to take care of the well-being of your children should be made with utmost caution and thoughtfulness. You can choose any person, provided you know your children will be comfortable in their care. You should also choose a property guardian to ensure that your estate is managed and distributed as per your choice. Both guardians can be the same person. However, it is better to have separate individuals for each role.
4. Appoint a power of attorney
A power of attorney is used to appoint someone to pay your bills, provide for your children’s expenses, maintain your house, etc. in your absence. In most cases, as a single parent, you are the only authorized signatory on the bank accounts, cards, etc. However, in the case of your untimely absence, incapacitation or disability, no one would be able to use the money from your accounts. Appointing a power of attorney allows the trusted individual to manage your financial affairs and take legal decisions if you are unable to do so yourself.
5. Appoint beneficiary designations
Merely investing in plans such as an individual retirement account (IRA), a 401K account, college saving plans, annuities, mutual funds, life insurance policies, etc. is not sufficient to secure the future of your children. As a single parent, you must ensure that all the policies and plans have updated beneficiary designations as per your wishes. This will help in avoiding confusion and unnecessary legal hassles in case of your untimely demise, incapacitation, or disability. The beneficiary forms will be the final determinant in deciding who the investments will belong to, regardless of the names mentioned in your will. You can take professional advice on how to direct the benefits of your investments to your children without court intervention and ensure that all your savings and investments can be redirected to your children’s use.
6. Invest in comprehensive life insurance
Even though quite underrated, the significance of life insurance in protecting the future of your children and loved ones is undeniable. A life insurance policy offers financial support to your family in your absence. The insurance coverage can be used by the beneficiary to pay for college, marriage, a house, etc. It can also be useful to pay off debts or start a business. This is why, for a single parent, buying a comprehensive life insurance policy becomes even more critical since the child does not have another parent to depend on financially. Thus, investing in life insurance should be a very vital part of estate planning. If you have an existing policy, ensure the death benefits are substantial to meet the needs of the future. You must also factor in the standard of living and inflation before buying a policy. In the case of minor children, parents should get legal advice on appointing beneficiaries to ensure that the proceeds are directed correctly.
7. Have a legal and updated will
Ideally, everyone above the age of 18 should have a legal and updated will in place to provide for unexpected circumstances. A will becomes even more necessary in the case of a single parent, as there may not be any active involvement of the second parent. A will is useful in many ways. It mentions the person appointed as the beneficiary for the estate and the precise share of their inheritance. It also specifies the people responsible for the maintenance of the estate. In addition to this, the will can be used to name a guardian for the child in your absence or incapacitation.
In the absence of a will, the estate distribution and handling are done as per the orders from the court of law. However, it is important to have an updated and legal will to ensure your wishes are executed as planned with barely any legal complications and hassles.
To sum it up
As a parent, your basic instinct is to protect your child, but this cannot be done unless you plan your estate wisely with utmost prudence. You also need to update and revise your estate planning documents to ensure that there are minimum complications in the future. If things seem complicated, you can always seek help from financial advisors and ensure that your estate plan is executed just as you desire.