As recently as 30 years ago, most people were expected to marry and have a family. Today, more and more people are single by choice, whether they have never been married or have been divorced and opted not to remarry. Some singles are single parents, or tasked with the care of elderly parents or unwell siblings, while others are completely free of any responsibility to anyone other than themselves and perhaps a pet or two. While being single can be a wonderful way to live, it also poses some serious questions when it comes to estate planning. Who gets your assets when you die? What happens if you die without a Last Will and Testament? What type of will should you have as a single person? Consider this your single person's guide to estate planning, where we will help you understand the basics of ensuring your estate goes where you want it to go when you die.
If you have other estate planning questions or are ready to create your estate plan in Austin, call Jason English Law at (512) 454-7548 to learn more.
Who Inherits a Single Person's Estate?
When some people, particularly those from older generations, hear that a person is single, they equate that to being alone. They imagine that this single individual has no friends, no family, no anchors of any kind. This brings up the question of who would this single person leave their money and other assets to when they die, if they have no one? The reality is that single people often have plenty of connections, and many potential beneficiaries.
A few options to whom single people might leave their assets:
● Their family (parents, siblings, nieces, nephews, cousins, stepparents, stepsiblings, family by choice)
● Friends
● Their children, if they are a single parent
● Charities
● Their pet (through a guardian to care for the pet)
● Former schools, causes, or other institutions that are meaningful to them
What Type of Will Is Best for a Single Person?
No guide to estate planning for singles would be complete without ensuring that single people understand all the basic estate planning documents. A Last Will and Testament, often simply called a will, is one estate planning document that single people should consider creating. However, single people should also consider a trust, depending on their assets and how they want those assets to be distributed. Single people should also consider a living will and medical power of attorney.
Which Will Is Right for You?
Single people might think they do not need a will. They may assume that when they die, their nearest relative will inherit their estate. While this may be true, the Texas Estates Code has a specific order for next of kin that may mean the relative who inherits may not be the one the deceased would have wanted to inherit.
Beyond making sure the right person or people inherit their estate, other reasons a single person should write a will include:
● Having a positive net worth
● Owning a home or other assets that will need distribution after death
● Wanting to make specific financial gifts to specific individuals or charities
● Want to leave specific material assets to specific individuals or charities
● Want to leave specific instructions on caring for pets
● Having cosigned or joint debts that you do not want to leave another person with
● Naming a legal guardian for minor children, if you are a single parent
A simple will is a basic document that can allow individuals to accomplish a great deal in terms of directing what will happen to their estate after they pass away. Simple wills do not have any fancy clauses or requirements, but they allow individuals to name a guardian for minor children, make specific bequests to heirs, and create a testamentary trust.
Should You Create a Trust?
Some people would prefer to avoid having their estate go through probate. Others have assets they want to bequeath to others in a will, while having other assets they want to handle differently. A trust can help individuals achieve either goal, or both.
A trust can also be used alongside a will to allow more flexibility in distributing assets and providing for loved ones or charities. If you are considering a trust but are not sure your estate needs one, Jason English Law may be able to assist you in determining the right options for your estate.
The Importance of a Living Will for Single People
The Texas Health and Safety Code outlines a specific order of people who can make decisions for an incapacitated adult. Beginning with the spouse if the individual is married and moving down the list, this law gives a short list of relatives the right to decide what kind of treatment an incapacitated person should receive. The problem with relying on this list is that the people named in the legal code are not necessarily the individuals best acquainted with your wishes under any circumstances, but particularly for end-of-life decisions regarding medical care and pursuing or withdrawing treatment.
Instead of hoping that the person designated by law will know what you would want, remove all doubt by creating a living will and pairing it with a medical power of attorney. A living will allows you to spell out exactly what kind of care you want in the event you are incapacitated. Because you cannot account for every medical possibility, giving someone you trust medical power of attorney allows you to have someone make the decisions that you did not anticipate while knowing they will consider what you would have wanted if you could make the decision yourself.
What Is the Best Trust for a Single Person?
There are many types of trusts. Each type serves a different purpose. Some are better suited to married couples with families they want to provide for, while others are better for a single parent providing for a special needs child, or a single person who wants to give their assets to a charity, or a single person who wishes to pay for a godchild's college education. Three trusts that single people may want to consider include a revocable living trust, an asset protection trust, or a testamentary trust.
Revocable Living Trust
A revocable living trust offers the greatest sense of control over assets while allowing the most changes. Grantors of this type of trust can add or remove assets, change beneficiaries, and even cancel the trust while they are alive. This can be very beneficial for single people who hope to marry or have children one day, as it allows them the flexibility to include that future spouse and children.
This type of trust becomes irrevocable upon the grantor's death. A revocable living trust does allow the estate to avoid probate (unless there are other assets that did not get placed in the trust before death), but it does not offer as much tax protection as an irrevocable trust.
Asset Protection Trust
An asset protection trust, as its name suggests, protects an individual's assets from potential creditors, lawsuits, or judgments against the estate. This type of trust may be helpful if one of the people you are leaving assets to has financial issues that could cause someone to come after their inherited assets.
This type of trust may also be a good idea if the grantor is a business owner who wishes to secure personal assets separately from those involved in the business. Asset protection trusts can similarly be useful for grantors who have a higher income and assets (a net worth of more than $250,000, for example).
Testamentary Trust
A testamentary trust is a special kind of trust that is identified inside an individual's will. The trust is created when the testator (now also the grantor) dies. All or part of the estate, depending on how the will is written, goes into the testamentary trust. Individuals can create more than one testamentary trust as well.
A testamentary trust is often used to provide for a relative with special needs or a minor child. This type of trust may also be helpful if the individual wants to stipulate that a beneficiary can receive their inheritance upon reaching a certain age or other milestone.
What Is the 5 x 5 Rule for Trusts in Estate Planning?
The right of withdrawal, a yearly option that is also sometimes referred to as the 5 by 5 power, is a potential clause that allows the beneficiary or beneficiaries or a trust to withdraw from the trust within the specified period. Grantors wishing to apply this requirement must write the 5 by 5 clause into the trust's governing document explicitly. The right of withdrawal clause allows beneficiaries to take up to 5% or $5,000, whichever is greater, as a distribution from the assets of the trust.
The grantor can set parameters around this clause, such as that the beneficiaries can only access these funds to buy a house, go to school, pay for healthcare, or other specific circumstances. This clause creates flexibility for access to additional funds without a discretionary distribution, but it does have two significant drawbacks:
● Faster depletion: Depending on the number of beneficiaries and the way the clause is written, this could allow the beneficiaries to deplete the trust more rapidly than might otherwise be the case
● Taxes: When this clause is included, the Internal Revenue Service (IRS) taxes the beneficiary at 5% or $5,000 even If they do not opt to use this power.
Are You Ready To Create Your Estate Plan?
This guide to estate planning is not intended to be comprehensive, and it does not take the place of professional or legal advice tailored to your situation, but it has covered some of the basics that may help you determine some initial steps you may want to take in creating your own estate plan.
