Once upon a time—when the legal code was being written—“family” was shorthand for a husband, his wife and their children. Estate planning could be pretty straightforward for this kind of nuclear family. When the first spouse died, the survivor would inherit everything, and then everything would be divided up among the kids when the second parent died. Even if the first spouse died with a will or any of the other standard documents on an estate planning checklist, the courts would generally default to awarding their property to their surviving spouse.
Many of today’s families don’t fit that mold. As of the 2020 census, 22 percent of parents living with kids were unmarried and 15 percent of parents were single parents. About 4.5 million family households included at least one non-relative. The number of Americans living in multigenerational families, which include at least two generations of adult relatives living together, has quadrupled since the 1970s. Millions of Americans have created blended families or extended families that include adult siblings, grandparents and close friends living together and sometimes raising children together.
Estate planning is critically important in non-traditional families. Without the appropriate estate planning protections in place, the courts may not recognize the rights of your loved ones to make decisions for you if you’re incapacitated or to inherit your assets after your death. And vice versa; you may be denied certain rights if members of your family are in the hospital or die. Here’s a look at some of the estate planning checklist items that you might need to discuss with your estate planning advisors.
The basic estate planning documents that most adults need include:
- Last will and testament
- Durable power of attorney
- Advance healthcare directive/Healthcare proxy
- HIPAA release
Estate planning checklist items for unmarried couples include:
- Giving each other legal authority over financial and healthcare decisions. Naming each other as healthcare proxy and attorney-in-fact through your power of attorney is a simple process that unmarried partners can’t afford to skip.
- Creating a plan for shared assets. Intestacy laws determine how assets are distributed to a person’s heirs when they die without a will. The spouse is first in line to inherit—but being unmarried, your assets would bypass your partner and be inherited by your closest legal relatives instead. Unmarried couples need to talk to their estate planning advisors about ways to protect shared assets and transfer individual assets to one another after death.
- Strategizing around estate tax planning. There are a few strategies that married spouses can use to maximize their individual estate tax deductions and preserve more assets for their heirs. Unmarried couples can’t take advantage of all those strategies, so it’s important to speak to your advisors about estate tax planning and ways that you can minimize or avoid future estate taxes.
Estate planning checklist items for blended and extended families include:
- Updating beneficiary designations. Certain retirement accounts, life insurance policies and other financial accounts have beneficiary designations. When the owner dies, the account is inherited by whomever the account owner named on the forms when they set it up. In a blended family, that might mean one partner has a life insurance policy that still names their ex-spouse as the beneficiary. Or a grandparent who is raising their grandchild might still have their late spouse named as beneficiary, and will want to update that to name their grandchild instead. Everyone in a non-traditional family who has any of these accounts should verify that the right people are set up to inherit those valuable assets.
- Creating a plan for custody of any minor kids. Custody issues can get thorny for blended and extended families, especially if any of the existing custody arrangements are informal or if there are other parents in the picture. Make sure you know who would have the legal authority over minor kids if the custodial parent is incapacitated or dies.
- Sorting out who inherits what. In a nuclear family with three kids, the parents might elect to divide assets evenly among them. But things aren’t always that simple in a non-traditional family. For example, maybe in your blended family, your partner’s biological child has a trust fund set up by their other parent, and you’re the one who owns the house you all live in. You might elect to leave the house to your own biological child in your estate plans, knowing that your stepchild is already taken care of. Creating clear plans now for transferring assets can prevent conflict among your loved ones later on. They might not love the choices you make, but that’s probably better than them fighting with each other over who should get what.
Estate planning checklist items for single parents include:
- Naming guardianship backups. Creating a will is critically important for a single parent. If you’re incapacitated and there’s no other custodial parent in the picture, it’s up to the courts to decide who takes custody of your child. A judge will typically follow the wishes that the parent laid out in their will, but only if the person or people named in the will are deemed willing and capable. In the event that your first choice guardian isn’t able to take custody, name a secondary and maybe even a third choice.
- Establishing trusts for your kids. Many single parents use trusts to hold assets with their children as beneficiaries. Choosing an executor you trust provides peace of mind knowing that, if you die, they’ll distribute your assets in a way that’s aligned with the child’s best interests.
- Maintaining adequate insurance coverage. Buying life insurance guarantees that your surviving child would have a financial safety net if you were to die. Life insurance is generally advisable for single parents of minor children, even if you also have trusts and other assets earmarked for their care.
- Creating personal instructions for the care of minor or special needs children. Without a co-parent in place, a single parent may want to make a record of some important instructions and requests around the care and raising of their kids. This could be something as simple as a short letter summarizing your parenting philosophy, or dozens of pages covering everything from important birthday rituals to your wishes for your child’s religious upbringing.
Other estate planning considerations for non-traditional families may include:
- Pets. Many of us consider our pets to be part of the family, so they could be considered as part of the estate planning process. A pet owner may use their will to leave their animal to a trusted person or organization, and may also leave the new owner some sum of money for the pet’s ongoing care.
- Non-related kids. Maybe your best friend’s daughter has always felt like part of your family, or your ex has a child whom you’ve always loved. Estate planning can be used to leave money or other assets to anyone who’s an important part of your life, even if they’re not related to you through blood or marriage.
Sachetta, LLC meets every client exactly where they are. Whatever “non-traditional” looks like for you, we want to help you craft estate plans that serve your specific family’s specific needs. Don’t worry about ticking off items on a basic estate planning checklist; reach out to our estate planning advisors for guidance tailored to your life. Contact us today.
Stephen Sachetta CPA, MST is a Certified Public Accountant and holds a Master’s Degree in Taxation. He has a diverse background of experience in the public accounting field over the past 40 years, ranging from the former Big 8 to being one of the founding partners of our firm. He specializes in the Restaurant and Food Service Industry and works with individuals and small businesses at developing them into flourishing companies while helping them to save tax dollars along the way.