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Recent articles by Terry Savage: • Trapped by debt? Free yourself in 7 steps, 1/11/2004 • 7 ways to raise kids who can hold onto money, 1/9/2004 • Consider annuities -- but as a last resort, 3/16/2003 More... |
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A solid financial plan may be even more important for those who are not married. Here's why singles need to take charge of issues such as insurance, wills and child custody. By Terry Savage Youre single. Perhaps more than anyone else, you need to make plans. You may be single by choice or by circumstance. Young and unmarried, divorced, widowed. Maybe you have a child. Or youre comfortable on your own, or as part of a relationship. Or perhaps youre seeking someone to become a partner in your life. For any number of reasons, about 48% of adult Americans are technically single in the eyes of the law. Whatever your situation, you need to plan -- just in case something happens that takes you out of control. What could happen -- and how should you plan? The consequences seem so dire, its easy to avoid thinking about the worst case. But what if you become ill or are in an accident or die suddenly. Who would take care of you -- and your finances? Who would care for your children or pets? Who would make medical decisions on your behalf or be able to dip into your savings to pay the bills?
Absent legal directives, friends and relatives may be unable to act on your behalf. Or they may be intellectually or emotionally unable to help. Think and plan now, while youre alive and well. And talk about these issues with those who, you hope, will accept these responsibilities. Im superstitious. Leaving these things to chance is like inviting fate to step in. So here are nine issues for singles to consider. Depending on your situation, the answers may be different. But all are worth thinking about. Life insurance Lets be frank: If you have no one depending on your income, you probably can do without a policy. Theres no need to buy while youre young and insurable, despite what they say. And there are better ways to build up a tax-free nest egg if youre young. (My favorite is to set up a Roth IRA account.) And remember this: If youre young and die suddenly, your job benefits will probably cover funeral costs. Debts will die with you. And leaving life insurance proceeds to your parents will hardly compensate them for the loss of a child. Everything changes if youre a parent or support someone else. Now you need coverage -- the cheaper the better. If youre under 40, go for term insurance, which buys much more than a whole or variable life policy; you can even lock in premium rates for up to 20 years. Look for a policy that lets you convert at any time into a whole life policy. If you become uninsurable in the next 20 years, youll still be able to convert and have coverage. As a parent, you have at least 21 years of expenses ahead, including college. Even if youre a stay-at-home, divorced spouse, your life should be insured to cover the costs of replacing your talents as mother, homemaker, carpool driver, etc. You might also want to own the policy your ex-spouse takes out on his life as part of your divorce agreement and increase your maintenance payments to cover the cost. That way, youll know that the premiums are paid. Minor children cant be beneficiaries, so youll need a mechanism to establish trusts to hold your assets if you die before the kids reach adulthood. If you dont, the courts will -- and charge your estate, too. You can name anyone or any organization as beneficiary, including a charity. Think about who owns the policy, too. If you have a lot of assets (say, more than $1 million), consider creating an irrevocable life insurance trust to own the policy. That will get the proceeds out of your estate. Revocable living trust Creating a revocable living trust may be the best way for singles to create an estate plan. It is more useful than a simple will, and more flexible. You may not have a lot of assets to leave to your heirs, but a living trust goes further than a will. It names a successor trustee -- the person whom you designate to act on your behalf, not only in distributing your estate, but in taking over if youre incapacitated. Because youre single, you want to be clear who should manage your money and business affairs. But it does no good to create the revocable living trust unless you retitle all your assets in the name of your trust. So youll have to change the title on your house or condo to the name of the trust, as well as change names on brokerage and mutual fund accounts. Changing title to your assets may take some letter writing but except for a minimal cost (typically less than $100) to retitle real estate, it has no costs and no tax consequences. Health-care power of attorney This is a separate document that everyone -- single or attached -- should create and leave with your family and physician or lawyer. It designates someone whom youve authorized to make medical decisions on your behalf if you cant. In a crisis, youll want this designation perfectly clear. Some people will choose a special friend, instead of a parent, to have the power of attorney, hoping to avoid family fights over whether to operate, do more tests, or other medical issues. Living will The living will carries your directive not to take extraordinary procedures to prolong your life in case of a terminal condition. It may also include your directives on donating organs for transplants. Single or attached, its important that those closest to you and your physician or lawyer have a copy of this document. Child custody A judge ultimately will decide who gets custody of your children if you die, and state law may bear upon this issue. But you can make your wishes known. Typically, the court will award custody to the remaining parent. But if you feel strongly that your mother or brother or a close friend should have custody of your children, write a letter stating your wishes to be given to the judge under these circumstances. Discuss this possibility with your choice to be sure shes willing to act as custodian. Dont forget the pets Pets mean a lot to single people. Too often, however, people forget or are embarrassed to name their loyal pets in a will or make arrangements for them. You can make this part of your living trust -- especially if you need to arrange money for their care. At the least, discuss your pets future care with someone you trust. And put your wishes in writing, in case a relative makes an issue out of it. Business power of attorney If you have extensive business dealings and partnerships, you might want to create a Business Power of Attorney. Sometimes called a springing power of attorney, this will spring to life if you are unable to act. The person to whom you designate this power may be different from your successor trustee in a living trust, or the person named in your health-care power. But it insures that decisions that must be made can be made. Long-term care insurance This becomes important when you reach your mid-50s. Being alone and ill is a very real fear. Even if you have a companion, the financial consequences of a prolonged illness, or even Alzheimers, can devastate the best-laid plans. So look at long-term care insurance, a need not covered by Medicare or Medicare supplement policies. Long-term care insurance is designed to pay for care at home, or in a nursing institution. If youre buying in your mid-50s, youll want to purchase lifetime coverage to keep up with inflation. Then you can be sure you wont outlive your money, and your friends and relatives wont have to shoulder the financial burden or place you in a state-funded nursing home. (For more information, see 3 steps to help parents grow old gracefully.) Critical illness insurance Critical illness insurance policies are especially designed for singles with no dependents who dont want to buy life insurance. Critical Illness policies pay you a lump sum in cash if you survive 30 days after diagnosis of any one of 12 major illnesses -- including cancer, heart attack, stroke, multiple sclerosis, Alzheimers, kidney disease, blindness and paralysis. The total amount of your policy is paid directly to you, or your trustee, in cash. You can use the money for anything you want -- paying off a mortgage, adding a wheelchair ramp to your home, paying off medical bills. The entire payout is tax-free. This coverage is more expensive than life insurance. And its not a substitute for health insurance. But if youre worried about this question and have the cash to spare, investigate the costs. The primary issuers in the U.S. are Canada Life and Garden State Life of League City, Texas. (See links at left.) Getting organized No matter what decisions youve made about these issues, its important to make those decisions legal and to make those legal documents available to people who will need them. Though youve given a copy of your health-care power to your doctor and left a copy of your living trust with your attorney -- how will everyone know what you want? My suggestion: Write a directive and place sealed copies where they can easily be found. Give one to your parents, a sibling, or your significant other. In the letter, list your accounts and advisers, passwords for computer programs and location of safety deposit boxes and keys. Yes, you hope this letter is never opened, but youll be more at peace if you know its there. One place NOT to put it is your safe deposit box, unless someone else has permission to go into the box. Otherwise, the box may get sealed if you die, depending on state law. And who will know where the key is? A final thought If you dont plan, your state will step in to deal with most of these issues. While your pets may be forgotten, the hospital will ask a court to decide who can make medical decisions if you havent created instructions. You may have wanted your assets to go to a friend, but relatives may precipitate a court fight. So consult estate and insurance specialists who know how the law works with singles. After all, in most of these cases if you make a mistake, you wont be around to correct it. | |||||||||||||||
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