It is certainly easy for the estate planning lawyer to say that every adult needs at least a will. But if we think about it, does the single person with few assets really need an estate plan at all?
In every state, if a person dies without at least a will, all of his or her property will be distributed according to state intestacy law. What if the single person is satisfied with whom the state law selects as the beneficiary of all of his or her assets? If people with assets of significantly less than $1 million also don’t have to worry about estate taxes, then what is the point of any estate planning?
The point is that, as illustrated below, one’s net worth does not necessarily correlate with the levels of complexity involved in resolving his or her estate. We must still look closely at our entire situation before shirking estate planning.
Hypothetical: “Jane Example”
In this post, we’ll create a hypothetical single person, “Jane Example”, to help us further understand certain issues special to single individuals. See if you have anything in common with Jane:
- Jane is single with no children. She has an elderly and incapacitated father, Aaron, who receives care in a retirement home. Jane oversees the bills and any day-to-day issues. Her mother passed away some time ago.
- She is estranged from her brother, Bill, who lives in another state.
- She has $50,000 in a retirement plan that names Aaron as the sole beneficiary.
- She lives in a townhouse, which she owns jointly with her life partner Maya as “tenants in common”. It is worth about $350,000 and has $350,000 of debt.
- She has $50,000 in cash and investments in her own name.
- She also has about $10,000 of jewelry, a $10,000 car, and various furnishings and personal effects that are not worth more than $5,000.
Let’s discuss some estate planning issues that a single non-millionaire might come up against. Then, let’s apply these thoughts to Jane’s case.
To Whom Will Your Assets Be Distributed?
Your assets that have a named beneficiary or a co-owner (such as a life insurance policy or retirement plan) will go directly to those named persons after your death.
However, if you die without a will or trust, your state’s intestacy law determines who will receive your individually-owned assets. The key problem with intestacy is that you lose the ability to choose who gets what – instead, the court will assume that state law meets your wishes.
Most states will designate that the decedent’s surviving spouse and any surviving children would have first priority to the estate. However, for the single person without any children, undesirable results can easily occur since all states’ intestacy laws only allow relatives to be potential beneficiaries.
Who Will Distribute Your Assets?
Probate involves the local court’s oversight of
the distribution of your individually-owned assets. In many situations, probate is helpful and useful because it places a limit on the amount of time that creditors can make claims against certain estate assets.
Perhaps the most important role of the probate court is to qualify and accept a personal representative for the estate. In cases where probate is necessary, the personal representative acting without court approval is acting without the authority of state law.
The court appoints the personal representative from whoever is qualified under state law and has taken the initiative to apply for the role. This could easily result in an undesired family member or even the deceased’s creditors serving as the personal representative. In states that do not recognize same-sex marriage, surviving partners could be subject to the whims of these persons.
The single individual without an estate plan also risks the following:
- The court choosing an undesired guardian for the deceased’s minor children.
- A life partner, close friend, charity, or other desired person receiving nothing.
- Payment to creditors from a disadvantageous source.
- For example, the personal representative may be forced to take funds from a retirement plan to pay off a debt, thereby increasing the estate’s income taxes.
- Payment of lump sums to minors or young adults.
- No one to represent the interests of the individual in case of incapacity.
Let’s apply these issues to our friend Jane. Who gets what, and how would the issues discussed above apply?
- Retirement Plan – Jane’s father Aaron automatically receives the retirement plan money.
- Townhouse – Because the townhouse is owned as “tenants in common” with life partner Maya, Aaron receives Jane’s share. Otherwise, state law and any property agreement between Jane and Maya would need to be examined closely to determinewhether Aaron is responsible for the mortgage.
- Investments and Car – In many states, since a deceased person’s parents are next in line after a surviving spouse and children, Aaron would be entitled to all of these assets.
- Personal Effects – The personal representative would have the duty to inventory Jane’s personal effects. However, would Jane want Bill or her creditors to decide what to do with them?
- Personal Representative – If Jane preferred Maya, intestacy law would not be helpful. Ordinarily, under state law, Aaron would probably be the state’s first choice to serve as Jane’s personal representative. However, since he is incapacitated, Jane’s brother Bill would be next in line, followed by the mortgage company.
- Who takes care of Aaron and the burdens of handling his share of Jane’s estate?
To summarize, even though Jane has about $100,000 in net assets, her estate would have a complex set of problems if she died without an estate plan. While Jane may have been satisfied with her father receiving so much at some point in the past, it would be hard to see her wanting this result now.
Suffice it to say, a single person with relatively few assets cannot automatically assume a simple settlement of his or her estate. As always, be sure to look closely at your own circumstances to see if an estate plan could actually simplify matters.
- Back to Basics: The Four Estate Planning Documents That Everyone Needs (sofloridaestateplanning.com)
- Single? Time to Start Your Estate Planning (lonichandpatton.com)
- Estate Planning for the Single Person (probatelawyersaustin.com)