Estate Planning Is Important for People Without Children
Fifty-six percent of Americans say they do not have a will. A 2016 Gallup survey said a majority of Americans haven't designated how their estate should be divided after their death.
For people who have children, state laws generally designate belongings to go to a spouse or kids if there's no will, says Patrick Simasko of Simasko Law, an attorney who specializes in elder law and estate planning in Mount Clemens, Michigan.
"That's who you'd want it to go to anyway," he says.
But complications arise for people with are single without children, unmarried cohabitating couples or even married couples without kids, he says. While the surviving spouse usually inherits all the married couple's assets, without each person having an estate plan things can go awry, Simasko says.
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"If the husband dies, (the assets) go to wife. Then she dies five minutes later. Everything goes to her side of the family. She hates her side of the family," he says. "There are unintended beneficiaries."
This is especially true for singles. The best example is when musician Prince died without a will. His estate is in probate court and nearly a year later it continues to be contested, with a judge appointing a bank to oversee the process to keep likely heirs informed.
These complications and unintended consequences make it especially important for singles and married couples without children to plan not only for distribution of their assets, but how to take care of themselves should they become incapacitated, says Victor Medina, founder of Medina Law Group in Pennington, New Jersey.
"We have some obligation that the people who are going to step up to help have the right tools to make that go smoothly no matter what your wishes are," he says.
Where to start. Every estate plan needs to have at least a will and powers of attorney for financial decisions and health care. The powers of attorney come into play if a person is unable to make decisions for himself or herself.
Adrienne Penta, executive director of the Center for Women & Wealth at Brown Brothers Harriman in Boston, says often for married couples the person's spouse is the default, but if a couple is in a long-term relationship without a legal relationship between the two people, powers of attorney are critical.
"It's really important that they have legally designated someone. If you don't have someone who is named, oftentimes the default is a parent or sibling that you may not be physically or emotionally close to. (This person) can make decisions which may be contrary to what your partner would want," she says.
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People need to think critically about who they would want to be a power of attorney.
"You want them to have impeccable character," he says. "You want the person who finds the wallet outside the store and returns it without looking inside. They're going to have power over finances so it's hard to unring that bell."
This person can be older or younger, live nearby or far away and doesn't have to be a relative, he says.
It helps if people to write down exactly what they want done so the caretaker has instructions, he says. In the health care role it's a support document for the caretaker.
"They'll have to explain your choices to the other people not named. Like, 'here's when I want a feeding tube'," he says. "It's there to support the person you put in charge to defend their actions to everyone else."
For financial powers of attorney, make sure the language is broad enough that the financial institution won't try to object since the institution likely has strict internal policies about releasing funds.
"Make sure your power of attorney covers all the things you can do in that account, even if you're not doing them," he says. "They can reject powers of attorney that are not broad enough to cover everything you can do in that account."
Picking beneficiaries. Once powers of attorney are set up, Penta says, people should think about their beneficiaries. It's not uncommon that people without children name nieces and nephews in their wills. When doing that, it's a good idea to talk to family members about these gifts.
"There's a need for an additional layer or level of communication and conversation if you're going to enrich children who are not your own," she said.
Many people without children usually have favorite charities and may consider leaving them a gift, she says. From a tax perspective making charitable distributions while alive is more efficient since the donor gets both an income tax deduction and a gift tax deduction, depending on the size of the gift.
One way is to create a donor-advised fund, which allows the person putting the dollars in the fund to take a current-year tax deduction on the fair market value, she says. The money does not need to be immediately donated, which gives the person time to make a decision on which charity to choose.
For people who would rather leave outright gifts to charity after death, Simasko recommends earmarking money in individual retirement accounts versus other assets to help the organization avoid taxes.
Another idea is to set up a charitable foundation, with instructions on how to distribute the money over time, Simasko says. Setting these up is fairly easy as most financial institutions or estate-planning lawyers have documents available. But like anything else, the founder will need to name people to run it, he says.
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"I think they're a great idea," he says, "because it keeps your philanthropic name going for more than one year."
Debbie Carlson has more than 20 years experience as a journalist and has had bylines in Barron's, The Wall Street Journal, the Chicago Tribune, The Guardian, and other publications. Follow her on Twitter at @debbiecarlson1.