Estate planning is important for everyone. This is equally true for single individuals without children. While the law makes certain assumptions involving a married couple regarding financial and medical decisions should one spouse die or become incapacitated, that’s not necessarily the case with a single person. Indeed, without an estate plan, undesirable tax consequences could be more likely for single individuals without children.
It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain assets can pass to your intended recipient through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.
Those laws vary from state to state, but generally they provide for assets to go to the deceased’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half to the children.
If you’re single with no children, however, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state. By preparing a will, you can better ensure that your assets are distributed according to your wishes, whether it’s to family, friends or charitable organizations.
Financial and medical decisions
It’s a good idea to sign a durable power of attorney that appoints someone you trust to manage your investments, pay your bills, file your tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court would have to appoint someone to make these decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.
You should prepare a living will, a health care directive (also known as a medical power of attorney) or both to ensure that your wishes regarding medical care — particularly resuscitation and other extreme lifesaving measures — are carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.
Absent such instructions, the laws in some states allow a spouse, children or other “surrogates” to make these decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.
Gift and estate taxes
When it comes to taxes, married couples have some significant advantages. In particular, the marital deduction generally allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities. Further, married individuals generally are able to take advantage of estate portability.
For single people with substantial assets, it’s important to consider employing trusts and other estate planning techniques. These tools can be used to avoid, or at least defer, gift and estate taxes.
Revise as needed
If you’re currently single and have no children, contact your estate planning advisor. An experienced professional can help draft a basic estate plan based on your current situation. You can then revise it as major life events, such as marriage or the birth of child, happen.