retirement

No Children? Why You Still Need an Estate Plan

Someone has to inherit your assets, and if you don't decide, state laws will do it for you. That means your awful Great Uncle Ed may inherit, while your beloved cousin Mary may get nothing. That's only one reason to get busy.

Estate planning is an extremely personal process, not a one-size-fits-all endeavor. When an individual has no close relatives (other than perhaps a spouse), the decisions required to prepare an estate plan can sometimes feel overwhelming. Over the years, I have observed this struggle firsthand, causing some individuals to take years to complete their estate plan, or worse yet, not finish it at all.

Here are some considerations if you find yourself struggling:

Plan for Incapacity

Every adult should have an advanced directive for health care and a durable power of attorney for legal and financial decisions. These documents allow you to determine who will be in charge of your medical and legal affairs in the event you are no longer able to make these decisions for yourself. Not even a spouse has the legal right to make certain decisions for you without these documents. And, if you become incapacitated without these documents in place, your closest relatives will be involved in a court proceeding known as a guardianship or conservatorship to appoint someone (who you may not know) to be in charge of these decisions for you.

Consider a Trust

A trust is a legal document that can be used to manage many of your assets during your life, and act as a substitute for your will when you die. It has two main advantages: A trust helps avoid probate at your death and it allows you to give an inheritance in a protected and private way.

Probate is a court process that clears titles to assets in your sole name (essentially assets without a joint owner or a beneficiary designation) when you die. Courts typically require notice be given to your closest living relatives, known as your heirs-at-law. If you do not have a spouse or a child, your closest living relatives are your parents, followed by your siblings (or nieces and nephews if a sibling is deceased), followed by grandparents, great aunts and great uncles, and lastly, cousins. It’s quite possible that your closest living relatives could be people you barely know or people you might not want involved in your affairs.

Without at least a will, your closest living relatives (determined by laws in your state called intestacy) could inherit your assets. Even if you have a will, the probate process typically requires these relatives to receive notice of the proceeding, giving them an opportunity to intercede and find out information about all of your assets.

The best way to avoid these issues is to create a trust. During your life you should have your trust own most of your assets (except, for example a retirement account, which has a beneficiary designation). This is known as funding your trust, and it helps avoid probate for assets titled in the name of your trust.

Who’s In Charge?

In your Trust you’ll need to appoint a person who will be in charge after you’re gone, known as a successor Trustee. (During your life you can be the Trustee and manage your own assets.) A Trustee can be a person or an entity such as a financial institution. The Trustee will make sure your assets are distributed the way your Trust states. It’s very important to make sure you choose a Trustee who is responsible, responsive and organized.

If there is no one in your life who fits this definition, the best course may be to choose a professional to be the Trustee, such as an attorney, accountant, bank, investment manager or trust company. A professional will charge to provide these services, but the cost can be worth it to know that your wishes will be followed correctly. Your attorney should be able to help you find a reputable professional Trustee. In order to find an attorney skilled in estate planning, you can look at the list of attorneys in ACTEC (the American College of Trust and Estate Counsel).

What to Do with Your Assets

This can be the decision that people struggle with most. Many times, people will want to make sure their parents are taken care of. However, since most of us will survive our parents, successor beneficiaries need to be named. Nieces and nephews are typically benefited. However, others to consider are friends, pets and charities. Your attorney can review the best way to leave your assets so that distant family members will have difficulty contesting your decisions.

Charities can also be included in the estate plan. Charitable bequests can take the form of a specific bequest for a general or specific purpose. If the charitable gift is to be significant, the charity can be contacted beforehand to ensure that your gift is used, and recognized, in the way that makes you most comfortable.

Don’t Forget About the Pets

Your estate plan can help establish who will take care of your furry loved ones when you are no longer around. This can be done by leaving the pet and some money to a trusted friend or loved one. Or, you can set up a formal pet trust to provide for your pet. Whatever you choose, the important thing is to make a plan so that you pet can be properly cared for if you are no longer able to do so.

The bottom line when it comes to estate planning is you have the right to determine who will inherit your assets. In order to ensure your wishes are carried out as you intended, it is crucial to have the proper planning in place to avoid probate and allow for a seamless transfer.

About the Author

Tracy Craig, Fellow, ACTEC, AEP®

Partner and Chair of Trusts and Estates Group, Mirick O'Connell

Estate attorney Tracy Craig is a partner and chair of Mirick O'Connell's Trusts and Estates Group. She focuses on estate planning, estate administration, prenuptial agreements, tax-exempt organizations, guardianships and conservatorships and elder law. Craig is a Fellow of the American College of Trust and Estate Counsel and an AEP®. She has received an AV® Preeminent Peer Review Rating by Martindale-Hubbell, the highest rating available for legal ability and professional ethics.

 

Most Popular

What Are the Income Tax Brackets for 2022 vs. 2021?
tax brackets

What Are the Income Tax Brackets for 2022 vs. 2021?

Depending on your taxable income, you can end up in one of seven different federal income tax brackets – each with its own marginal tax rate.
September 20, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
What Is the Social Security COLA?
retirement

What Is the Social Security COLA?

Consumer prices have spiked this year, meaning a higher Social Security cost-of-living adjustment for 2023.
September 16, 2022

Recommended

Taxes in Retirement: How All 50 States Tax Retirees
Tax Breaks

Taxes in Retirement: How All 50 States Tax Retirees

We rated every state, plus the District of Columbia, on how retirees are taxed. Some of the results might surprise you.
September 23, 2022
How Much Does Amazon Prime Cost (And Is It Worth It?)
Amazon Prime

How Much Does Amazon Prime Cost (And Is It Worth It?)

Plenty of prices are higher in 2022 and membership in Amazon Prime (up 17%) is no exception. Are you still getting your money’s worth? We’ll test the …
September 22, 2022
Using Your 401(k) to Delay Getting Social Security and Increase Payments
retirement

Using Your 401(k) to Delay Getting Social Security and Increase Payments

Your 401(k) can be a bridge from retirement to higher monthly income.
September 21, 2022
How to Keep More Money in Retirement: Tax Diversification
Making Your Money Last

How to Keep More Money in Retirement: Tax Diversification

No one likes paying taxes, especially once you've retired and are no longer earning a paycheck. So here are some steps to consider now that could help…
September 20, 2022