Amy Sbrusch, CPA, Tax Manager
The more wealth you accumulate over your lifetime, the more important it is to think about legacy and estate planning. For married individuals, all assets normally go to the surviving spouse, unless otherwise specified. However, singles need to be more actively (and creatively) thinking about their line of succession and how their estate will be handled. This includes clearly identifying beneficiaries, assigning an executor, and being aware of any tax-related issues. While it may seem complicated, it’s just a matter of getting your ducks in a row and then taking the necessary steps. This is where a qualified estate planner can assist, as well as a tax accountant, so you don’t have to go it alone.
No two situations are alike. The following are some common scenarios that may resemble your current life situation:
At the end of the day, it is about who you want to help and what persons/organizations would benefit from your money or assets.
The selection of a trusted executer of your estate warrants careful thought. If parents or siblings are alive, they may be the best option (assuming they are capable and willing to handle the work involved). Since this can become a burden on family members (i.e. due to age or inability), you may consider assigning a close friend to this role. Finally, a third-party institution/bank is a way to ensure the management and disbursement of your estate is handled in a professional and objective manner, although it will incur higher service fees than paying family or friends.
The inheritance tax exemption is currently $11.2 million for a lifetime, which is still high, even for a single person. So, in the majority of cases, there are not many estate tax issues to worry about. If your net worth is higher, however, there are some limited actions you can take to avoid your heirs having to pay taxes. Since singles do not have the option of setting up a marital trust, there is an alternate option to form a family limited partnership amongst siblings, which allows you to gift out your estate while alive. It is wise to gift assets that you know will appreciate over time by putting that into the partnership, getting it out of your estate value before it becomes worth more than the $11.2 million limit. An example would be a piece of property that will most definitely appreciate in the next 5-10 years, such as a building in a developing area or a business that is growing.
If you want to be charitable, you can set up a private foundation (although it requires someone to run it and makes most sense if you have tons of money) or specify a non-profit organization (501c3) or institution you would like to donate to (for example, a hospital, church or arts organization). It is a good tool for singles if there is no one to leave your money to.
Another way to shield against estate taxes is via donor advised funds; whereby, you make large sum donations in your name by putting money into a donor advised fund (such as Fidelity, etc.). This allows you an income tax deduction today, while also reducing your estate.
Singles really need to think about and plan for medical and financial powers of attorney in the event you become incapacitated for some reason. In addition to specifying medical directives regarding extraordinary measures and end of life care, it is also important to keep your business running. Making your wishes known in writing requires a formal set of documents, which can be done online or through your attorney. As these are hard decisions for parents, siblings, or children to make on your behalf, such documents take some of that stress away from them. It is also a good idea to talk openly with family and friends about your wishes regarding things like medical treatment, so they are aware of your wishes.
Since life changes as events unfold daily, it is important to review your situation periodically and make adjustments, as needed. I recommend reviewing your status every five years to stay on top of any pertinent changes that would impact estate planning, including a change of mind regarding beneficiaries, guardians, executers, etc.
If you are single, there are unique considerations that will influence your estate planning decisions. First, it is advised to know your current and anticipated net worth within the context of your unique life circumstances. After assessing your situation, you may want to talk to an accountant for help with figuring out the best route to take. This costs money but can help avoid costly misstates (i.e. due to lack of knowledge around tax laws). Your accountant can also help you find an attorney, review the content of your will and help by answering tax-related questions. Professional assistance with such matters is especially useful if you expect to have a large estate (falling above $11.2 million). It also serves to circumvent the emotions that frequently arise among family members by engaging a professional accountant and/or attorney to mitigate potential problems like fairness.
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