Estate planning is the process of arranging for the distribution of your assets after a person’s death. It is important for everyone to have an estate plan, but it is especially important for single parents. Single parents have a responsibility to ensure that their children are financially and emotionally protected in the event of their death.
A successful estate plan can help single parents achieve the following goals:
- Provide for the financial needs of their children
- Appoint a guardian to raise their children
- Minimize estate taxes
- Avoid probate
- Protect their children’s inheritance from creditors and predators
Common Estate Planning Mistakes to Avoid
Single parents often make the mistake of believing that they do not need an estate plan because they may not have a substantial amount of assets. However, even if you have limited assets, it is important to have a plan in place to ensure that your assets are distributed according to your wishes.
Another common mistake that single parents make is putting off setting up an estate plan and saying they will get to it “later”. Estate planning is something that should be done early on so that you are prepared for any of the worst-case scenarios that life may throw at you.
Estate Planning Basics
There are a few essential estate planning documents that all single parents should strongly consider:
- Will: A will is a legal document that states how you want your assets to be distributed after your death. It is important to have a will in place, even if you have few assets. If you die without a will, your assets will be distributed according to the intestate laws of your state, which may not be in line with your wishes.
- Testamentary trust: A testamentary trust is a type of trust that is created in your will. Testamentary trusts can be used for a variety of purposes, such as providing for the financial needs of minor children or protecting the inheritance of a child with special needs.
- Guardian designation: If you have minor children, it is important to designate a guardian in your will or other estate planning documents. Your guardian will be responsible for raising your children in the event of your death.
- Power of attorney: A power of attorney is a legal document that gives someone the authority to act on your behalf. You can create a durable power of attorney, which will remain in effect even if you become incapacitated.
Trust and Asset Management
There are two types of trusts that can be especially beneficial for single parents:
- Community property trust: A community property trust is a type of trust that is created for married couples. However, single parents can also create community property trusts. A community property trust can help to protect your child’s inheritance from your creditors.
- Dynasty trust: A dynasty trust is a type of trust that can last for multiple generations. Dynasty trusts can be used to protect your child’s inheritance from estate taxes and to provide for the financial needs of your grandchildren and great-grandchildren.
Legal and Tax Considerations
When creating an estate plan, it is important to consider state tax planning and estate tax planning.
- State tax planning: Tax planning can vary depending on the state where you live. In Maryland, the first $5 million of an estate is not taxed. Any amount that exceeds 5 million is taxed at 16%. Maryland is also the only state in the country that has an inheritance tax in addition to an estate tax. It is important to work with an estate planning attorney who is familiar with Maryland laws.
- Estate tax planning: The federal estate tax is a tax that is imposed on the transfer of assets from a deceased person to their heirs. The federal estate tax exemption for 2023 is $12.92 million. However, states may have their own estate taxes, with lower exemption amounts. If you happen to have a large estate that exceeds the amount of the federal exemption, it is important to develop strategies to reduce estate taxes.
Take the First Step toward Protecting Your Family’s Future
A comprehensive estate plan is one of the most caring acts you can do for your children. Baddour Law Firm has decades of experience helping parents in Maryland put in place estate plans that secure their children’s futures.
To get started on your estate plan, contact us today at (301)-494-2108 to schedule a free initial consultation with one of our knowledgeable and compassionate estate planning attorneys. We will review your family’s specific needs and goals and outline steps you can take to protect your children’s financial security for years to come.