Introduction
It’s a common misconception that estate planning for singles is any different than estate planning for spouses or people with children. Your actual plan and beneficiaries will certainly vary, but the core documents and essential topics are the same.
The big differentiator with estate planning is usually your wealth and the complexity of your assets. Small estates can get by with a simple will, but wealthy individuals will need a more robust plan to minimize estate taxes and transfer sizeable assets.
If you’re wealthy and single, here are 10 things to consider as you put together your estate plan:
- Preparing for potential incapacitation
- End-of-life healthcare
- Funeral and burial services
- Appointing an executor
- Naming beneficiaries
- Addressing estate taxes
- Directing assets that are subject to probate
- Directing assets that are exempt from probate
- Business succession planning
- Legacy planning
Preparing for Potential Incapacitation
This topic is particularly morbid and uncomfortable, but avoiding it can have devastating consequences. If you become incapacitated and cannot communicate important decisions, you’ll need someone to handle your affairs, manage your assets, access your medical files, and speak with doctors on your behalf.
Appoint an authorized agent with a durable power of attorney, and include wording in the document that grants them the power to act as your healthcare proxy. Depending on your assets, you can grant this person unlimited access, or you can restrict control to certain accounts. For this responsibility, single people usually turn to a parent, a sibling, or a trusted advisor/manager, although it’s not uncommon to see close friends appointed to the role.
End-of-Life Healthcare
On a similar note, it’s important to spell out your healthcare preferences in case you are ever unable to communicate important medical decisions to your doctors. A living will (also referred to as an advance directive) is the best way to do that. Living wills usually address topics such as palliative care (treatments to alleviate pain and suffering), resuscitation (such as a do-not-resuscitate order), and artificial life support.
If you’re incapacitated, your healthcare professionals will consult your living will to decide which treatments and procedures you would be okay with. This may seem redundant if you have a healthcare proxy that can speak with doctors on your behalf, but it’s still helpful to have a living will that your proxy and your loved ones can consult to understand your wishes.
Funeral and Burial Services
Most people address funeral, burial, and cremation services in their will, but it’s also a good idea to address these things in a letter of intent. A letter of intent left with a loved one is not a legally binding document, but they’re helpful to clarify your plans and make sure your family knows of your wishes in time for the funeral. It’s best to purchase pre-needs services from a cemetery or crematorium, but it’s perfectly acceptable to just state your wishes and indicate which assets should be used in your letter of intent.
Appointing an Executor
The executor (also known as a personal representative) is the individual who will handle your estate when you die. They will be tasked with gathering your assets, settling your liabilities, distributing your assets, and closing your estate. This individual will have full access to your assets and will be responsible for following your instructions, so it’s critical to nominate someone who is trustworthy and responsible.
Many single individuals nominate a parent or sibling, but wealthy individuals would be wise to consider using a trusted advisor or professional, such as an attorney or financial advisor. It’s a good idea to nominate a backup executor in case the primary nominee is unable to fill the role. You can also nominate secondary executors to audit certain aspects of probate and transferring of your assets, to assure that your primary executor is doing things right.
Naming Beneficiaries
This part is pretty straightforward. While married people or folks with children lean towards gifting assets to their spouse and children, singles often gift assets to their surviving parents, siblings, nieces and nephews, close friends, and charities. If you’d like to dictate how the recipients should use your gifted assets—such as paying for a niece’s education or paying off your parent’s home—you’ll want to establish a trust (discussed later) that can distribute assets based on your specifications.
For all the beneficiaries that you name in your will, be sure to include their full name and date of birth for easy identification by the probate court. Also, keep in mind that your will becomes a matter of public record during probate, so if there are any gifts, assets, or beneficiaries that you would like to remain private, you’ll need to transfer those assets through a trust instead.
Addressing Estate Taxes
Estate taxes can be a monumental headache for wealthy individuals. While married couples can deduct up to $11 million in assets, single individuals can only deduct $5.49 million. Any asset value over that amount will be subject to estate taxes, which can be as high as 40%.
To avoid losing a significant portion of your estate to taxes, you’ll want to adopt a gifting strategy far in advance. As of 2018, the IRS allows you to gift $15,000 per person per year without triggering a gift tax return, and making periodic gifts within this allowance to lower the value of your estate is a great way to ensure your loved ones receive your assets without losing a portion to estate taxes. You can also transfer assets to an irrevocable trust to minimize estate taxes down the road (subject to the same $15,000 annual exemption, and $5.49 million lifetime exemption).
Directing Assets That Are Subject to Probate
Your will can only bequeath assets that are subject to probate. For each of these assets, designate a beneficiary and include any special transferal instructions in your will. If you fail to do this, the assets in question will be subject to the state’s intestate succession laws, and your family members will have little say over who receives the assets. Assets that are subject to probate include:
- Individual bank and brokerage accounts
- Property owned individually or as tenants in common
- Accounts where you or your estate are listed as the beneficiary
- Personal possessions (vehicles, art, jewelry, furniture, collectibles, etc.)
Directing assets that are exempt from probate
Assets that are exempt from probate typically have a contractual beneficiary listed on the account. If you include any of these assets in your will, the contracted beneficiary will always trump your instructions in the will, rendering the will meaningless and possibly subject to contest in probate court. Assets that are exempt from probate include:
- Bank and brokerage accounts with a payable-on-death or transfer-on-death beneficiary
- Property owned as joint tenants or as tenants by the entirety
- Life insurance policies
- Retirement plans
- Trusts
Business Succession Planning
If you have full or partial ownership of a private business, you’ll need to work with an attorney to draft a succession plan. Without a proper plan, the heir who receives your share of ownership will be subject to crippling gift taxes that may force them to sell the company or take out a loan to cover the tax burden.
Legacy Planning
You’ve worked hard to accumulate your assets, so you deserve a say in how they’re used when you die. While a will can only direct who is to receive which assets, a trust can include terms that dictate how the beneficiary can use the assets. The trust will be prudently managed by a trustee, making it easier to distribute assets to children (minors can’t own or directly receive property).
A trust is a great way to pay for a nephew’s higher education, a niece’s wedding, or even an annual family vacation for your extended family to take in your memory. You can also establish a charitable trust to leave a legacy for generations, with instructions to invest the principal value and distribute investment income to charitable causes of your choice.
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.