Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Why Traditional Estate Plans Won’t Work for Modern Families

Published on: Jul 14 2020
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The make-up of the modern family has changed quite a bit over the years.

Therefore, traditional estate plans won’t work well for many families these days.

A traditional plan is for couples who are in their first and only marriage and have only kids from that marriage.

Different plans, tools, and strategies might be needed for people with other life stories.

Let’s start with planning for the single person.

Many people now are unmarried for a substantial part of their adult years.

They might be widowed, divorced, or never married. They might be in relationships that don’t include legal marriage.

Several issues are the same for all of them.

The first focus of a single adult’s estate plan should be to ensure that someone competent will manage the property and other matters if the individual is unable to.

The best solution usually is a durable financial power of attorney or a living trust or both.

You also need a medical directive, which can include a medical power of attorney, living will, and other instructions.

These documents designate one or more people to make decisions about your medical care when you aren’t able to.

These tools also are important for traditional couples, but they are more important for others.

State and federal law often provide some protection and presumptions for married couples but not for singles.

As with married couples, the key to making these tools work is naming the right people to make the decisions for you and being sure the documents properly empower them.

Surprisingly, you’re also likely to need a document naming people who can visit if you are in a hospital or other facility.

This might be in the medical directive or a separate document.

Many medical providers now interpret federal privacy law to restrict access only to family members unless there is a clear statement from the patient.

Long-term care insurance or some other plan for long-term care might be more important for an unmarried person than for a married couple.

A single person doesn’t have a spouse who might be able to assist him or her.

While, Medicaid will pay for nursing home care and allow the retention of some assets, a married couple usually is allowed to retain more assets than a single person.

In addition to a single person’s being able to retain fewer assets for a legacy, the assets of any partner of the single person might be endangered under Medicaid, especially if the assets are owned jointly.

Living trusts become more important to those with chronic illness or conditions.

Those are common issues for all single persons.

Now, let’s look at different situations single persons might face.

Unmarried estate planning candidates fall into three categories: Those who have children from a previous marriage or relationship; those who never had children; and those who are part of a couple but won’t be getting married or whose state doesn’t recognize their marriage.

The categories can overlap, but each category has some unique challenges.

You need to worry about state and inheritance taxes when you live in one of the states with the taxes.

As with a married person, a single person who passes away without a will has the disposition of the property determined by state law.

If there are biological children, in most states the property will be divided equally among the children.

If there are no children, the disposition can be very unexpected, depending on the state and which relatives are alive.

The property could go to half siblings, cousins, or nieces and nephews.

Single adults, especially those without children, are more likely to have nonfamily and charities as objects of affection and so prefer a disposition different from that offered by state law.

Other issues about children from more than one relationship and nonbiological children are discussed later in this strategy in the discussion of patchwork families.

With a traditional couple in these situations, the solution is to draft a will, but single people might prefer having most assets pass through a revocable living trust.

Depending on the state, the probate process for a will might require notice to everyone who would have been eligible to inherit if there had not been a will.

For an unmarried person, especially one without children, that can mean constructing a family tree and proving the demise or divorce of extended family members.

Property in a living trust avoids probate, and the terms of the trust determine who inherits the property.

A will is still needed because it might not be possible to transfer all property to the trust, but the living trust might minimize delays and costs.

Another key issue for singles is the choice of an executor or successor trustee when there is no spouse or adult child to take the role.

There might be friends or family members who are able and willing to handle the position.

There are a number of assets that aren’t covered by a will or living trust.

These assets include IRAs, retirement plans, annuities, and life insurance.

Singles need to decide who they want to benefit from these assets, complete their beneficiary designation forms, keep copies of the forms, and update the documents when appropriate.

The executor of your estate needs to know about these assets and where to locate your records.

Taxes are an interesting planning issue. The income tax law can be more generous for unmarrieds, but the estate tax is less generous to singles than to married couples.

Often a married couple pays higher income taxes than two single people with the same incomes.

Partly for that reason, some seniors choose to live together without getting married.

Staying unmarried allows them to file separate returns, and a couple might be able to shift some deductions to the one in the higher tax bracket.

In next week’s issue of Retirement Watch Weekly, I’ll discuss more of the challenges for “modern families” with regards to estate planning.

P.S. Estate plans are crucial for ALL families… not just “traditional” ones. In fact, that’s one of the reasons I wrote my new book, the NEW AMERICAN RETIREMENT PLAN. It’s one of the most comprehensive, do-it-yourself retirement guides you’ll ever find… and my publisher has allowed me to give away free copies to a limited number of people. Find out how to claim yours here in my latest investigative report.

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