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How to Protect Your Estate as a Single Parent

Estate planning to ensure the care of your children when you are no longer able to presents certain unique challenges for a single parent. Here are some tips to consider in designing the right care plan for your children if you are no longer able to care for them.

7 Minute Read

Your responsibilities as a single parent make your estate planning needs distinctly different from those of a married couple. Without a second parent to manage the household when you no longer can, who will settle your estate and bare responsibility for the welfare of your children? Perhaps the other parent does survive you but you do not consider that parent sufficiently equipped to take over the full-time care of your children. While courts ultimately decide who will raise the children after you are gone based on what the court determines is in the best interest of the children, how do you ensure your guardian of choice is considered for the role?

A well-drafted estate plan can help to protect your children, because it allows you to make your wishes known from beyond the grave. If you do not leave behind a formal and legal estate plan, you risk guesswork on the part of courts and your estate administrators who may implement a care plan for your children that is wholly different from what you would have wanted. 

If you do have an estate plan, it’s important to review certain provisions of your estate plan to ensure it still comports with your wishes.  Review your guardian designations regularly during the time in which any of your children are under the age of majority and make updates as circumstances change.   Many people fail to do so, and while your mother seemed like the obvious choice for guardian when your children were born, now that she is 80 years old, she might no longer be the best choice.  Review your executor and trustee designations regularly to ensure the person named to manage financial assets for your child is able and willing to do so and ensure you have named successors in case he or she is not.

The following are factoring all single-parents should consider in designing an estate plan to ensure the appropriate care children after you are no longer able to do so.

A guardian plus a trust

If your child is still a minor, your primary need is to arrange for a guardian. If you do not name a guardian and you die while your child is a minor, a court may choose a guardian who is unacceptable to you. While the court has the ultimate say as to who acts as guardian, you can make your voice heard by specifying in your will who you wish to have custody of your child in your absence. In addition, you can establish a trust  and appoint a trustee who has a fiduciary duty to protect  your child's financial interests in your assets after your death. With a trust, you can control the age and conditions for distributing trust assets to your child and ensure that the trustee will provide professional asset management. You may also give the trustee discretion to pay for a child’s education or enable your child to start a business.  If you child has special needs, the trust may be drafted so as to preserve your child’s access to federal and state public health benefits.

Life insurance proceeds

Life insurance can provide needed funds to care for your child when you are gone.  Holding a policy in trust ensures that the death benefit proceeds are managed for your child’s benefit by a fiduciary who is required to manage the assets in the best interest of your child.  Life insurance proceeds are income tax-free to the recipient and are not included in your taxable estate for purposes of calculating any potential estate taxes due, if the policy is owned by a separate trust called an Irrevocable Life Insurance Trust.

If you currently own one or more life insurance policies, you can transfer full ownership of your policy to the trust and as long as you survive three years from the transfer, the death benefit proceeds are not included in the taxable estate.

Disability planning

Your estate plan should also provide for the possibility of your permanent or temporary disability. Disability insurance can provide important income continuation when you are disabled and unable to work.  Your estate plan should include a durable power of attorney and a healthcare power of attorney, naming a reliable party to make financial and health care decisions if you become unable to make them for yourself. Naming a successor trustee in your revocable living trust  gives your trustee the ability to manage assets titled in the trust if you cannot and make payments from the trust on your behalf.

Reducing your taxable estate

For those with larger estates, reducing the taxable estate through lifetime gifts can make a substantial impact on the estate tax liability owed by your estate at your death, thus allowing more of your estate to provide financial benefits to your children.  Though the federal gift tax and estate tax exemption has now increased to over $11.5 million, it is scheduled to sunset to near $6 million on January 1, 2026. Unlike married couples, your options for reducing your taxable estate do not include the marital deduction but giving a series of gifts to your children remains an easy and practical strategy, especially if you transfer assets that are likely to appreciate in value. You can make tax-free annual gifts up to $15,000 per recipient this year (adjusted for inflation), either outright or in trust and other gifts up to $11.54 million in 2020 without incurring a gift tax. Over time, annual and lifetime giving can have a substantial effect on the size of your estate.

Other planning strategies might be appropriate in your individual circumstances. Discuss any concerns with your Union Bank relationship manager, and your Union Bank team and outside advisors can suggest the most advantageous course of action for you and your heirs.

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Wealth planning strategies have legal, tax, accounting and other implications. Prior to implementing any wealth planning strategy, clients should consult their legal, tax, accounting and other advisers.


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