Tuesday, December 18, 2012

Estate Planning and the Single Client

     Much of the writing we have done at Plainly Legal focuses on planning for the married couple with children. While this particular demographic has many reasons to ensure their estate planning is complete and up-to-date, they are certainly not the only ones who should feel that need. Estate planning is just as important for the unmarried individual as it is for their married counterparts. 
    As we have previously written, a primary purpose of estate planning is to distribute assets to the individuals and charities of your choice. For a married couple lacking an estate plan, the intestacy statutes deliver the vast majority of assets to a surviving spouse. Coupled with a natural tendency for married couples to own property and bank accounts jointly, the statutes insure the surviving spouse retains control of their deceased loved one’s assets. For an unmarried individual there is no surviving spouse, nor is property normally held with survivorship rights. Most, if not all of the assets of an unmarried individual are owned solely by that individual. The Michigan intestacy statute, which controls if there is no Will or Trust, distributes assets through the family tree starting with parents, then to siblings, then nieces and nephews, then aunts and uncles, and so forth. Depending on family size and closeness of living relatives, assets may be distributed to relatives who have not been seen in years or spread among a large number of people. 
     Even when an individual wants assets to go to their extended family, they frequently would prefer to know that those assets will be used for certain purposes. For example, parents may have sufficient assets of their own and a person may want their assets split among their siblings to ensure that their nieces and nephews can pay for college. Intestate succession can deliver those assets to the siblings outright (presuming that parents are deceased), but offers no guarantee that the siblings will use the assets to pay for their children's education. However, by establishing a trust, the individual has the ability to make those assets available to their nieces and nephews to help pay for their education without worrying that the money will be spent before those nieces and nephews reach college age. 
    Alternately, a person may wish to look out for their parent’s needs in the future. An outright distribution to the parent can potentially affect the parent's ability to qualify for other government benefits. By establishing a trust that makes discretionary distributions to the parent, it is possible to provide a parent with a higher standard of living without having those assets used before government benefits are available. An additional benefit of this method is the ability of the person to decide what other beneficiaries, or charity may inherit any assets that remain at the parent's death. 
     Speaking of charities, taking the time to prepare an estate plan ensures that the single individual’s assets passing to charities, friends, and other loved ones that he or she sees fit to provide for at their death. Those who rely on the intestacy statutes to distribute their assets do not have this option, as the statutes never provide for distribution outside of the bloodline. 
    An unmarried person should not forget to make appropriate beneficiary designations for any retirement benefits, including IRAs, or life insurance they may own individually, or through benefits provided by their employer. If a beneficiary designation is not made, the benefit must go through probate and is controlled by the intestacy statute. With appropriate beneficiary designations, a person can designate specifically who should receive the benefits. 
      In discussing distributions at death, it is also important to consider is the disposition of personal property. Personal property may have significant value, such as collectibles or artwork or may just have sentimental value because they have been passed down through the family for generations. In the absence of any estate planning this property passes along with all other assets through the Probate Court. Under the statute, family members, who may not be aware of their loved one’s personal life or inclinations, control the destiny of their personal items. Through estate planning, items of value, both sentimental and monetary, go to those people the person knows will appreciate them most. 
       As with everyone else who creates an estate plan, the documents that function during lifetime are as important to a single individual as they are to the married couple. Documents such as HIPAA Authorizations and Patient Advocate Designations ensure that doctors and hospitals know who the person desires to make medical decisions on their behalf should they become incapacitated. Furthermore, a Durable Power Of Attorney ensures that someone is authorized to make legal decisions on the person's behalf. In the vast majority of married couples the husband and wife name each other in these roles, but for a single individual the decision is less obvious but equally important. 
     Many of the single individuals I speak with are reluctant to put together a plan, frequently because they either are worried about offending a family member either through their gifting or by who they named to make decisions and act as trustees. Others find such decisions difficult because they are not close to family, and contemplating what happens after they die makes them uncomfortable. When speaking to people with such concerns I find it helpful to remind them that while through events or circumstance they may not be close to their genetic family, they have surrounded themselves with friends and loved ones who fulfill those roles in their lives. By failing to plan for the inevitable, they ultimately affect those people who they love the most, even if they are not genetic family. Close friends are no less affected by the death in the family member and it is important not to add to their burden. 
     Obviously, there are reasons for everyone to engage in estate planning. For an unmarried individual, control over distributions and choosing people to make decisions on your behalf that you are close to, as opposed to family, are high on the list. It is also important to remember that by having an estate plan including a trust, it is possible to avoid the time and expense of the probate process. Finally by engaging in the estate planning process individuals begin the process of a lifetime of planning, something that single individuals frequently delay because there is less imperative to plan when the only concern is their own well-being.

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