With all of their day-to-day responsibilities, single parents may not have given much thought to estate planning. However, it is particularly important that single parents put an estate plan in place. If you are a single parent, you'll want to consider these important estate planning steps.
Having a Will Drafted
A will is essential. In your will, you can outline how you want your money and other property to be distributed. If you die without a will, your state's intestacy laws determine how your assets are divided, leaving you with virtually no control over who receives them.
You should specify in your will whom you want to have legal custody of your minor children. If you pass away and haven't named a guardian for your children, a court may appoint one. The person the court chooses may or may not be the choice you would have made.
Completing Beneficiary Paperwork
Be aware that certain assets, such as money held in retirement accounts and life insurance proceeds, generally pass automatically to the beneficiaries you have named on the plan and insurance beneficiary documents rather than according to the terms of your will. You'll want to make sure that all such beneficiary forms are complete and up to date.
Creating a Trust
An effective way to protect your minor child's financial interests in the event of your death is to create a trust. With a trust, you can control the age and the circumstances under which the assets will be distributed to your child. Moreover, you can include detailed instructions in the trust document to handle any special needs your child may have, such as educational or medical expenses.
The trust operates in a relatively straightforward manner. In your will, you leave some or all of your assets to the trust. The trust document appoints a trustee to manage and distribute the assets of the trust in the manner you spell out. The trust document identifies the beneficiaries who will receive the trust assets and when they will receive them.
If you have a life insurance policy -- and it is generally wise for single parents to have life insurance -- you can direct that the proceeds be paid to the trustee. Doing so ensures that the insurance payout will be managed and administered along with the rest of the trust assets. By keeping the life insurance proceeds in the trust, you have the ultimate say over when and how your child will receive the money from the insurance payout. This type of control might be necessary if you worry about your child's ability to handle a large sum of money wisely.
Protecting Your Earning Power
Your financial health and the financial security of your child are generally intrinsically linked to your occupation. An accident or an illness could upend your ability to work and, ultimately, severely affect your overall financial wellness. Disability income insurance coverage can help you pay for day-to-day living expenses in the event of an illness or an injury. It is just as important to look into ways you can name someone to make financial and health care decisions if you were no longer able to make them yourself.
Whether you have one or more minor children, a financial professional can offer insights into ways that you as a single parent can protect their personal and financial interests should anything happen to you.