The Ultimate Guide to Estate-Planning for Single Parents [2020 Edition]
Do you have an estate plan? If you are a single parent, estate planning is one of the most important things you can do for your children. Through an estate plan, you can continue to take care of your children, even though you may no longer physically be there for them. Our Maryland estate—planning attorney offers this Ultimate Guide to Estate Planning for Single Parents to assist you as you consider the steps required to secure the protection and well-being of your children should the unthinkable occur.
In this guide, we will discuss several estate planning topics for single parents including:
Three Questions Every Single Parent Needs to Answer About Estate Planning
The One Most Important Estate Planning Document a Single Parent Needs
How Single Parents Can Provide for Children with Special Needs
Setting Aside Money for College
Other Estate Planning Documents Single Parents Need in Their Estate Plan
Three Questions Every Single Parent Needs to Answer About Estate Planning
Single parents have unique challenges when developing an estate plan. In most cases, their overriding goal is to provide for the care and upkeep of their children should they pass away while their children are still minors. With that in mind, below are three essential estate planning questions that all single parents ask themselves when they begin developing an estate plan.
1. Who will raise my children if I were to die before they become adults?
If your child’s other parent is living and fit, the answer is simple. Your child will continue to live with and be raised by his or her other parent. However, if your child’s other parent is not capable of raising your child, who will step into this important role? Choosing a guardian for your child may be the hardest part of developing an estate plan. Your child’s guardian makes decisions for your child related to his or her education, religious upbringing, medical care, extracurricular activities, and place of residence.
It might be a natural choice to name your parent or parents as your child’s guardian. However, depending on your parents’ ages and overall health, you might also consider naming substitute guardians in case your parents are unable to raise your child for any reason.
Before choosing someone to serve as guardian for your minor children, it's helpful to have a long, honest conversation with the person or persons to ensure that they will accept the responsibility. Choosing someone whose parenting style and philosophies are closely in line with your parenting style and goals for your child can help your child adjust easier after your death to a new parental figure in his or her life.
2. Do I have sufficient life insurance to provide for my children after my death?
Many single parents worry about providing for the financial needs of their children after the parent’s death. Life insurance is an affordable way to provide funds for the education and upkeep of your children after your death. However, do not name a child as the beneficiary of your life insurance policy. A minor cannot receive funds from a life insurance policy.
Instead, many parents create an Irrevocable Life Insurance Trust to hold the proceeds of a life insurance policy. Some parents name their estate as the life insurance beneficiary and allow the proceeds to pass through their estate.
In either case, placing the life insurance proceeds in a trust allows you to dictate how the proceeds are to be used to benefit your child and when your child can receive the funds from the trust. A trust provides for your child’s financial needs without allowing your child to have direct access to the funds until he or she reaches an age at which you believe your child will be mature enough to manage the funds.
3. What happens if I remarry?
Estate planning for blended families has several unique challenges. Will you leave everything to your new spouse with the assurance he or she will provide and care for your child after your death? Will you carve out a portion of your estate for your children and leave joint property to your spouse? Should you create a trust naming another person as the trustee to ensure your child’s interests are protected? What happens if you and your new spouse have children? How will you ensure your child from a previous marriage is treated equally after your death?
These are difficult questions to answer. While you love your new spouse, you have a desire to protect your child. A Maryland estate planning attorney is an objective party. An attorney can help you step back to look at the situation objectively to ensure that your estate plan provides for your child while also meeting other goals and desires regarding your new spouse and any future children you might have with that person.
The One Most Important Estate Planning Document a Single Parent Needs
If you could only choose one estate planning document, a will is the document that an estate planning lawyer would advise you to create.
Without a will, the intestate laws of Maryland dictate the administration of your probate estate. The state’s intestacy laws determine the distribution of your property after your death. The state also decides who will serve as the guardian for your child and who will manage your child’s inheritance until he or she turns 18 years of age. Creating a will prevents the state from deciding for you regarding the future, well-being, and care of your child.
A will need not be complicated or lengthy. A simple will allows a single parent to name a guardian for minor children. With a simple will, a parent can also create a testamentary trust. The testamentary trust directs that a child’s inheritance is to be held in trust for the child’s education, upkeep, and care until the child reaches a certain age. Many parents choose an age that gives their child time to mature and complete college before receiving their inheritance. The will also designates a trustee and a successor trustee to administer the trust for the benefit of the child.
“A will need not be complicated or lengthy. A simple will allows a single parent to name a guardian for minor children. ”
— Steve Thienel
It is wise to have a comprehensive estate plan that includes a variety of estate planning tools. However, if you do not wish to create a comprehensive estate plan, a will is the essential estate planning document for you to have to protect your children after your death.
How Single Parents Can Provide for Children with Special Needs
Providing for a child with special needs can be tricky. Leaving a large inheritance directly to your child could exclude your child from receiving the government assistance and benefits he or she needs for medical and personal care, such as Medicaid or Supplemental Security Income. A Special Needs Trust is the answer.
A Special Needs Trust is an irrevocable trust designed to hold your child’s inheritance so your child can be eligible for needs-based benefits. A trustee uses the trust to provide for things that your child may need or want that is not provided by government benefits.
“A Special Needs Trust is an irrevocable trust designed to hold your child’s inheritance so your child can be eligible for needs-based benefits.”
— Steve Thienel
The trust is created and funded to ensure that the funds and assets cannot be counted as resources when determining eligibility for certain programs. Your attorney can help you draft the terms of the trust to maximize the use of the trust funds without jeopardizing any other benefits. As a Third Party Special Needs Trust, any money remaining in the trust after your child’s death is not subject to a Medicaid lien because the property never belonged to your child. The property was transferred directly to the trust to benefit your child during his or her lifetime.
Setting Aside Money for College
A testamentary trust (a trust created through your will) typically has language allowing the trustee to use the funds for educational purposes. However, many single parents want to set aside funds to be used solely to further the child’s education. These funds may be used for private school tuition while the child is a minor or college tuition once the child graduates high school.
By creating an Education Trust Fund or College Trust Fund, you control how the use of the funds. You also avoid gift taxes and estate taxes by placing the funds in a trust instead of allowing the money to go through your probate estate before using the money to pay for educational expenses. Another benefit of using an education trust is that the trust can be created now instead of waiting until your death. You can begin investing money in an account that earns interest and increases in value each year to provide for your child’s education.
Other Estate Planning Documents Single Parents Need in Their Estate Plan
A will may be the most important estate planning document for single parents. However, that does not minimize or eliminate the need for other estate planning documents to protect yourself, your property, and your children. Other estate planning documents for single parents include:
· Durable Power of Attorney — A Durable Power of Attorney designates an agent to handle your finances if you are unable to do so because of an incapacitating illness or condition. If you do not have a power of attorney, the state will appoint someone to manage your finances. Remember that your Durable Power of Attorney provides your agent the power to act on your behalf even when you are not incapacitated, so the choice of an agent you trust is crucial.
· Health Care Power of Attorney — A Health Care Power of Attorney names a person to have the authority to make your health care decisions if you cannot do so yourself. As with your Durable Power of Attorney, choosing someone you trust who understands your wishes regarding medical care is important.
· Living Will and Medical Directives — Living Wills and Medical Directives state your desire regarding life-sustaining or life-prolonging medical care, such as feeding tubes and ventilators. It can be difficult for family members to decide when to cease life-sustaining care. With a Living Will or Medical Directive, you make clear your desires to save your family members from having to make difficult decisions for you.
· Beneficiary Designations — Some assets pass directly to an heir outside of probate, such as life insurance proceeds and retirement accounts. Single parents do not want to name their minor child as beneficiaries, but they want to ensure the money or property is used to benefit their children. Trusts are the key to resolving this problem.
· Pet Trust — It might sound unimportant, but who will care for your pet after your death? When a child loses a parent, the family pet can provide comfort and stability. To ensure that your child’s pet continues to receive the care it requires, you can create a pet trust. A pet trust designates a trustee to manage funds within a trust for the care of a pet. The funds pay for food, veterinarian care, and other needs of the pet. Some individuals may not need a pet trust; however, if your child has an animal that requires special care, such as a horse, consider a pet trust.
· Trust Agreements — In addition to the trusts discussed above, a variety of trust agreements can be helpful in estate planning. Trusts can protect property from creditors, reduce estate and gift taxes, and maintain control of property after your death. Your attorney can review the types of trusts available and discuss the pros and cons of trust agreements.
Contact a Maryland Estate-Planning Attorney for Help
Creating an estate plan is not as complicated or expensive as you might believe and the benefits of an estate plan for single parents are well worth the time and cost involved in creating a comprehensive estate plan. Your goal now is to protect and care for your children. Assisted by a Maryland estate-planning attorney, you can continue to protect and care for your children even if you are taken from them unexpectedly.
