When you are single with no children, estate planning becomes even more challenging because you don’t have the benefits of deferring estate taxes via your spouse or children. It's also more difficult to ensure that your final wishes are carried out without a spouse or children in whom they can be entrusted.
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 documents:
Last Will and Testament or Revocable Living Trust
The last will and testament 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 last 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 becomes an even more important consideration.
Financial Durable Power of Attorney
A durable power of attorney for finances -- or financial power of attorney -- is a simple, inexpensive, and reliable way to arrange for someone to manage your finances if you become incapacitated (unable to make decisions for yourself). In the most basic form, a financial durable power of attorney merely says, "I want this person to make financial decisions on my behalf if I am unable to do so."
Healthcare Power of Attorney
The health care power of attorney is a document in which you designate someone to be your representative, or agent, in the event you are unable to make or communicate decisions about all aspects of your health care. In the most basic form, a health care power of attorney merely says, "I want this person to make decisions about my health care if I am unable to do so."
This document authorizes use and disclosure of protected health information for reasons other than treatment, payment or health care operations. It's an absolute necessity if your healthcare representative is to make informed 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 New York does not permit a directive for euthanasia or “assisted suicide.”
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..