Importance of Estate Planning for Single Parents
Estate planning is essential for all families. However, it’s beyond vital if you’re a single parent with young children. You probably don’t want to think of the worst of times right now, and we don’t blame you. But, unfortunately, you have to consider all the possibilities the future may hold, including a world where your children finish growing up without you.
What’s more, single parents face a variety of unique estate planning concerns compared to their married counterparts. This is mainly because a single parent may not have an ex-spouse they can depend on to care for their children should they pass away unexpectedly or become mentally incapacitated.
A proper estate plan can ensure that your children are taken care of and protected even if you can no longer physically be there for them. In this article, we’ll talk about the importance of estate planning in Huntsville, AL, for single parents and all of the things you’ll need to consider when planning your estate.
Keep reading to learn more.
Why Single Parents Need an Estate Plan
While most people need an estate plan to protect their assets, business, and family, estate planning for single parents looks slightly different. Single parents can have a small business they want to be passed down or protected through a mutual partner. They probably also have certain assets they want to be protected and a family to think about.
But the key word here is single. As mentioned above, not all single parents have a dependable ex-spouse or family they can depend on should something go wrong. So let’s start with the primary reasons why single parents especially need to plan their estates:
Guardianship, Guardianship, Guardianship
We can’t say it enough — the very foundation of becoming a parent is preparing your children for life, their futures, and the unexpected. For example, suppose something happens to a single parent while their children are still minors. There are no legal documents specifying their wishes for custody. In that case, the probate court will begin by granting sole custody to the other biological parent.
Suppose a biological parent cannot be located or doesn’t want to take on the responsibility. In that case, the courts will look for the closest family member and even friend to take on guardianship. Worst case scenario — and this happens more often than you think — the children end up in foster care.
Protection of Financial Assets
In the event of your untimely passing, your children’s financial security will be at stake. Therefore, it needs to be protected at all costs. Consequently, it’s pertinent that single parents establish legally binding plans to identify who will be in charge of the financial assets that their children will inherit when they’re old enough.
Financial assets can include retirement accounts, transferable bank accounts, insurance policies, social security benefits, and other sources of income that can provide financial support. But, more importantly, it’s essential to choose an individual whom you trust to manage these assets until it’s time for your children to inherit them.
Many people turn to their Huntsville attorney for this duty to ensure their children’s best interests are met.
Having a Formal Plan for Child Rearing
All parents have goals for their children’s future. Not to mention ideas of who they want their children to become. As a single parent, these goals and thoughts tend to be amplified as the child-rearing often depends on one parent.
An estate plan allows you to communicate your preferences for your children’s upbringing. This could include their education, sports participation, hobbies, religious upbringing, etc.
Without documents strictly communicating your wishes for your children’s upbringing, everything will be left up to their guardian to decide — and other people won’t always make the best decisions for your children.
What Happens if You Don’t Have an Estate Plan in Place
So far, we’ve discussed ensuring your children have a guardian, a plan for their upbringing, and an inheritance. These are the essential things to protect your children should you pass on early.
But what happens when you don’t have an estate plan in Alabama?
Dying without an estate plan — a last will — is considered dying intestate. When you pass on intestate, your entire estate and children will essentially become the temporary property of the state. Therefore, everything will have to pass through the probate court, which will follow the Alabama Intestate Succession laws to settle your estate and place your children with a guardian.
As mentioned earlier, your children could end up in the foster care system if the state can’t place them with a biological parent or close family member. However, they could also end up losing out on the financial security they need to survive.
Once your estate passes through probate court, it becomes a matter of public record. This means creditors, liens, and anyone else can lay claim on your estate, further depleting your children’s inheritance.
It should also be noted that the probate process can last anywhere between six and nine months. Longer if you have a large estate. This could leave your children without the proper financial support for a long time. That’s why your Huntsville attorney will advise you to create trusts for your children in addition to a will, as trusts are kept private and bypass probate completely.
The Most Important Considerations for Estate Planning as a Single Parent
Generally speaking, a lot goes into estate planning. After all, you’re not just planning for an unexpected passing but also unexpected events that could lead to you becoming mentally incapacitated. Therefore, you’ll have to go beyond wills and trusts to draft other essential documents that state your wishes for healthcare, money management, etc.
We’ll get to that stuff later. For now, let’s focus on the big questions you’ll need to ask yourself when estate planning as a single parent:
Who Will Raise My Minor Children If I Die?
Yes, we’re talking about guardianship again — it’s that important. If your children’s other biological parent is a good fit. In that case, the answer is simple, you’ll want your children to continue to live with and be raised by their other parents. However, many single parents don’t want this for their children, or the other biological parent isn’t an option for different reasons.
Who will be the individual that steps in and takes on this crucial role?
Choosing a guardian for your children is arguably the most challenging part of estate planning. This person will make decisions for your children based on your wishes and looks out for their best interests. This includes decisions for their education, medical care, extracurricular activities, and even their place of residence.
This means that choosing a guardian isn’t just about the individual you trust — it’s also about making decisions about your children’s living arrangements. Would you want them to continue living in your home, and will the guardian be willing to move? What if your chosen guardian moves out of the state? Are you okay with your children moving to their home?
Most people think about naming their own parents as potential guardians. While this may seem like the most natural or obvious choice, you would need to consider your parents’ ages and their overall health. For example, they may not be physically or mentally fit to care for young children at a certain age.
There’s a lot to consider regarding guardianship planning alone, which is why it’s not a decision to be rushed or taken lightly. Before choosing a guardian for minor children, it’s important to have a long and honest talk with this person (or people) to ensure they’re willing to accept the responsibility and act in your children’s best interests. It’s also necessary to create a contingency plan by naming a secondary guardian should something happen to your first chosen guardian rendering them unable to finish raising your children.
Is My Life Insurance Policy Sufficient Enough to Provide for My Children?
Single parents often worry about being able to provide for their children while they’re still alive. However, worrying about whether or not you can provide for your children after you’ve passed on is a whole other stress level. That’s why you need to assess your life insurance policy to ensure it can provide enough coverage upon your death.
Aside from ensuring that your life insurance can provide for your children, you also want to ensure they’re not named as the beneficiaries. Yes, you read that correctly. Minor children cannot legally receive the funds from a life insurance policy, which is why you technically cannot name them as your beneficiaries.
Instead, your Huntsville attorney will advise you to create an irrevocable life insurance trust to hold onto and maintain the proceeds of your life insurance policy. Like any other trust, you’ll name a trustee to manage those proceeds until your children can legally inherit them. Many parents also name their entire estate their life insurance beneficiaries and allow the proceeds to pass through their estate.
Either way, having a life insurance trust in place will allow you to dictate how the proceeds should be used to benefit your children once they receive the proceeds from the trust.
What Happens if I Marry Someone New?
Estate planning for blended families comes with quite a few unique challenges. If you remarry, you’ll need to update your current estate plans to reflect your new family while ensuring that your biological children are prioritized.
This means making several new decisions. For example, will you leave everything to your new spouse, assuming they will act in your children’s best interests down the road? Will you designate a portion of your estate for your children and leave your property to your new spouse? Should you name your spouse as the trustee of your children’s trusts? What if you have children with your new spouse or adopt their children as your own?
As you can see, there will be a lot of new questions you’ll need to answer if you get remarried, and it won’t be easy. You may love your new spouse, but you’ll need to put your children first, regardless of whether you trust them.
Helpful Estate Planning Tips for Single Parents
Don’t worry. We won’t bring up guardianship again. However, we will reiterate that there’s a lot involved in estate planning in Huntsville, AL as a single parent. Since we’re confident that you’ll work with an experienced attorney to create a solid estate plan, here are a few essential tips you’ll want to keep in mind:
Create a Trust if Needed
You can establish several types of trusts, most of which can be either revocable or irrevocable. Trusts are beneficial because they not only wholly bypass probate but are kept private and your assets safe.
When planning out trusts for your children, you’ll want to consider their present and future. This means any accounts you can make transferable upon death, including retirement accounts and your life insurance proceeds, put them into the appropriate trusts.
Use irrevocable trusts to ensure they receive certain assets for specific milestones and living trusts so you can manage the assets yourself. Your Huntsville attorney will guide you on proper asset allocation. Which types of trusts will work best for your situation.
Yes, You Need a Will
If you can only have one document in your estate plan as a single parent, your Huntsville attorney will tell you it has to be a last will. This is because you’ll use your will to designate guardianship for your minor children and your wishes for how you want your entire estate managed.
While you need a will regardless, it’s best to create it along with trusts. Trusts keep your assets out of probate court and out of the wrong hands while ensuring their management until it’s time to bequeath them to your children.
Essentially, you want your will to do three things: Assign a guardian with instructions for how you want your children cared for, take care of any assets left over after you’ve created the proper trusts, and outline your funeral arrangements and burial wishes.
Plan for Mental Incapacitation
Estate planning isn’t just for when you die. It’s also necessary while you’re still alive but unable to manage your own affairs or care for your children. This means planning out your Powers of Attorney (POAs).
POAs are legal directives that state how you want your various affairs managed and who will. For example, you’ll need one for your finances, your healthcare (also known as a healthcare proxy), and your business (if you have one).
Sign a HIPAA Authorization Waiver
The Health Insurance Portability and Accountability Act (HIPAA) prohibits sharing your medical information with anyone not directly affected by said information. Therefore, if you become mentally incapacitated and cannot make important health decisions on your own, your loved ones may not be able to access important information regarding your condition.
As a single parent, sharing information about your condition can be essential to your health. The HIPAA authorization waiver allows single parents to create a list of people they authorize to access this information to help your medical team make the appropriate decisions for your care and even your children’s care if needed.
Plan For Business Succession
If you run a small business as a single parent, then business succession planning is a must for your estate plan. Business succession planning will ensure that your business can continue to operate after your death or mental incapacitation — which can provide the financial security of your children in the process.
With business succession planning, your company can give your children their inheritance once they’re old enough and even transfer the business to them at a specific time. It can also be used to plan your business’s liquidation or closing after your death if there’s no one else to keep it running for you.
Hire an Estate Planning Attorney
One of the most critical tips for single parents planning their estate is: Hire an experienced attorney. It’s just not something you can do on your own, single or not. In addition, estate planning revolves around state law and other legalities that the average person doesn’t know. Not to mention, there are procedures to follow for filing, and only your Huntsville attorney can help you efficiently plan your estate to ensure that your children are provided for should the time come.
Contact us today to schedule a consultation with Sarah S. Shepard to discuss what estate planning in Huntsville, AL, will look like for single parents like yourself.