As an unmarried individual, you may feel overwhelmed when you think about who will step in and make decisions for you if you cannot make decisions for yourself and who will receive your money and property when you die. A married person often assumes a spouse would have authority to act on their behalf or would automatically receive their property when they pass away. Such assumptions are not accurate. For a single person, not even having those assumed helpers or recipients may complicate matters. You may consider your parents or siblings, but depending on whether they are living and the nature of your relationship, they may not be an ideal option. Creating and maintaining a good estate plan is important to ensure that your wishes are carried out during your life and after your death.

Choosing the Right Decision Makers

A time may come when you will need someone to handle financial transactions or make or communicate medical decisions on your behalf. Such a need may come as a result of aging, but can happen to anyone as a result of accident or illness. If you have not already chosen someone in a properly executed document, the court will step in and, using state law, choose the person who will make the important decisions for you. Below are a couple of the important roles that, to properly protect yourself, you should name someone to fill.

Agent under a Financial Power of Attorney

The agent in a financial power of attorney is the individual who carries out financial transactions on your behalf (such as paying bills or managing your bank account). The terms of the power of attorney spell out how long your agent can act for you and what he or she can or cannot do for you. No matter whom you choose, it is important that your agent be responsible, keep detailed records regarding the financial transactions they undertake on your behalf, and have the time to dedicate to the role. If you have no family member or friend whom you trust to manage your financial transactions, you can hire professionals to assist you.

Agent under a Healthcare Power of Attorney

If you cannot communicate or make medical decisions at some point, someone else will have to do it for you. By properly naming this person in a healthcare power of attorney, you retain control over who will make medical decisions on your behalf instead of allowing a judge to select someone to make such decisions. When choosing this person, it is important that you select someone that you are confident will follow your wishes regarding your medical decisions and will be available to make or communicate them. If you have no trusted family member to be your patient advocate, consider a close friend. You might consider naming a trusted professional, but many professionals may have limitations imposed on them by their industry regulations or state law.

Choosing the Right Recipients

If you do not have an estate plan prepared, your state has a set of laws that will determine who receives your money and property (owned solely by you and not controlled by a beneficiary designation) and the amount each legal heir will receive. Intestacy laws vary by state, but, in Michigan and most other states, money and property go first to a surviving spouse, then to descendants (children or grandchildren), parents, siblings, and siblings’ children, depending on who survives you.

Assets with beneficiary designation, such as life insurance and retirement assets, will pass to the named beneficiary, as long as that beneficiary survives you. However, if you fail to keep your beneficiary designation up to date, proceeds may be paid to your estate, requiring the costly and time-consuming probate process, or may go to individuals according to the order outlined in the policy or retirement account agreement. Such distributions may result in assets passing to someone you did not intend to receive them, or beneficiaries receiving the assets subject to unintended taxes and costs of administration.

Proper Tax Planning

The federal tax system gives preferential treatment to married people. Married couples can take advantage of the estate tax marital deduction and transfer an unlimited amount of money and property, tax free, to the surviving spouse when one spouse dies. In addition, married individuals are allowed to add any remaining part of their deceased spouse’s federal estate tax exemption amount to their own exemption amount.

Like a married individual, you can give away up to the annual exclusion amount ($15,000 in 2021) without having to file a gift tax return and pay gift tax. However, married individuals can make larger gifts and split the amount between them. For example, Spouse 1 and Spouse 2 can give $30,000 to their child without having to pay gift tax. In this case, a return may still be necessary, but if Spouse 1 and Spouse 2 agree to split the gift, each is technically giving only $15,000 to their child.

Because you can use only your lifetime exclusion amount and the annual exclusion amount, if you are very wealthy, you may need to engage in tax planning earlier and it may be more complex.

We Are Here to Help You

Completing your estate plan allows you to take control by providing instructions about what is to happen during your life and at your death. Estate plans can be drafted in many ways to guarantee that your unique wishes are carried out. Call us today to learn more about how we can help ensure that your legacy is protected and that the people and causes you care about are provided for.