Friday, 9 November 2018
It's hard to think about death when you're a single parent, and it's especially hard to make your wishes known so there's no guesswork upon your passing.
Sona A. Tatiyants is a California-based attorney specializing in estate planning, and she says it's not only important to think about what happens when you're gone, but to get covered in case you're temporarily incapacitated by an accident or another unfortunate event.
After the non-legal details are handled (such as how you want your funeral to go and where to find passwords to your digital world), the two biggest concerns are the children's guardianship and financial management.
Assume the other parent will get custody if you die or are incapacitated, no matter what the current arrangement is. If you feel the other parent is unfit but may want to take an active role anyway, you'll need to formally establish that through the court while you can. It's very difficult to have custody taken away when both parents are alive, Tatiyants points out, but even more so when one parent is gone.
If you know the other parent won't be involved, you'll need to designate someone —ideally, a list of several people—to act as a guardian for your children. This includes making decisions based on location, medical attention, and education.
Parents, single or not, should consider having a sort of “basket" in a trust (also called “living trust" or “revocable living trust") where they place their major assets, like property, savings accounts, and mutual funds, Tatiyants says, so you can continue to control your assets while you're alive. "You will hold it as the trustee of your assets, but as soon as you become incapacitated or you die, then another person—the successor trustee—steps in and starts managing it for the benefit of the child," she explains.
The difference between a trust and a will is that a will is only good in the event of your death. If you have a will and dictate that the property goes to your children, it will still go through probate. If the children are minors, they likely won't see a penny until they reach the age of majority in your state.
Either way, you will want to have a formal and legal plan for the event of your death, otherwise the state will dictate the distribution of your assets, which is called “probate." Generally, the hierarchy for a single parent is: child, grandchild, parents, siblings, nieces and nephews, grandparents, aunts, uncles, and cousins.
An executor is someone who carries out the wishes of your will. A trustee is someone who is acts on the behalf of your trust. It's nice to have someone you're close to as your trustee or executor, says Tatiyants, but being responsible at managing their own financial life is imperative.
The executor or trustee doesn't necessarily have to make all the investments—he or she is allowed to hire financial planners and attorneys to help act on your behalf and to “marshal the assets." This includes liquidating properties and accounts and re-investing the cash, paying off bills, and sorting out life insurance and retirement savings.
It also means making decisions such as selling your home, renting it, or keeping the child in it with her guardian. “Let's say the surviving parent of the child gets custody of the child," Tatiyants says. "Then the trustee's job is to communicate with the guardian, see what expenses should be paid from the trust that the guardian himself cannot pay for, and then take care of that."
One of the major mistakes Tatiyants sees is people not updating their guardian choices. “When your child's a teenager and your mom's in her eighties, that's not a good fit," Tatiyants says. “Make sure that at each stage of your life you have the appropriate people to act for you."
Another mistake is the early distribution of assets to children when they're still in their teens or 20s. Staggered distributions at various ages—say, from ages 25 to 30 to 35—tend to encourage the heir to spend more responsibly. And if the trustees are not United States citizens, there could be tax consequences.
An attorney who specializes in estate planning can walk you through each step. To find someone, ask friends and family, and then research to see if there are any state bar disciplinary actions to check for negative and positive reviews online. Make sure you mesh well with your new attorney, and that you can see yourselves working together for a long time as you and your family evolve. “Ask to see if they have a process to following up with their clients. You're planning for a worst-case scenario, and your worst-case scenario will change down the road," Tatiyants says.
But the biggest mistake you can make is to do nothing, leaving the fate of your assets and your children out of your control.
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