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Those who live solo — and their ranks continue to swell — no doubt appreciate the need for basic financial planning, such as saving for retirement and funding an emergency account to cover their living expenses should their income stream get interrupted.
But all too often, single adults fail to take the necessary next steps to safeguard their assets and their interests with proper estate planning.
Some may feel that their assets are too few to engage a lawyer. Others presume that an estate plan only pertains to those with a spouse or children. But financial professionals widely agree that estate planning is essential for everyone, regardless of net worth or family status.
“In my experience, most Americans misunderstand the concept of estate planning entirely, thinking it only applies to the wealthy,” said Jason Sebell, a wealth management advisor with Baystate Financial in Boston, Massachusetts. “At its core, estate planning is about being in control of what is most valuable to you. Do you care who can advocate for you in a hospital if you are incapacitated? Depending on the laws of where you live, do you want the state to automatically own a percentage of your hard-earned assets? If you have an opinion on any of these, you would benefit from having an estate plan.”
Plus, said Sebell, it is a strategy to help your heirs avoid the costs and challenges of probate.
The financial risks singles face
As of 2021, one-quarter (25 percent) of 40-year-olds in the United States had never been married — a statistically significant increase from 20 percent in 2010, according to a Pew Research Center data analysis.1
While some unmarried 40-year-olds are living with a romantic partner, the report found, most (88 percent) are not. In many cases, relatively young adults are simply choosing to focus on their education and career or delaying marriage until they are more financially stable. (Related: Financial planning for single income, with no kids (SINKs))
Living solo can be less complicated in a lot of ways. You have full control of your time, money, and personal space. You can travel where you want without having to debate destinations with a partner. And with fewer responsibilities, you have more free time for friends and family.
But because you rely on a single income, you may also need a bigger financial safety net to ensure that an unexpected job loss, illness, or sudden expense does not derail your future. Protection products, such as disability income insurance, which can help replace a portion of your paycheck if you become injured or too ill to work, are paramount.
The single life can also open the door to some estate planning risks.
For example, if you pass away without a will, the intestacy laws in your state will dictate which family members receive your assets. That may include a parent, sibling, or distant relative who would not have been your first choice. If you wish to bequeath what you own to a friend or a charitable organization, you must name those heirs in your will.
Similarly, absent specific legal documents that spell out your wishes for end-of-life care, state default laws may select a (court-appointed) stranger to make decisions on your behalf. For married couples, those decisions would generally fall to the spouse.
Why is it important to have an estate plan?
An estate plan wears many hats. Beyond enabling you to designate beneficiaries, the legal documents that are typically included in an estate plan will:
- Allow you to name a guardian to make financial and health care decisions for you if you become incapacitated.
- Enable you to define your preferences for end-of-life care.
- Help potentially maximize the financial legacy you leave behind.
“If you have assets, want to be cared for, or have to rely on someone in the future to help you make important decisions if you are not capable, then you should definitely do planning,” said Paul Mass, president and founder of ClearView Financial Solutions in New York City.
What estate planning documents do you need?
Here’s a list of the standard estate planning documents that belong in your financial toolkit:
- A last will and testament: A will is a legal document that outlines how your assets and property will be distributed after you die. In it, you can name the individuals or organizations that you would like to receive specific items, as well as select the person who will be caretakers to any dependents or pets you may have. For example, if you wish to leave your assets to a favorite charity, religious institution, or your alma mater, you must be intentional in naming them in your will. (Learn more: Will basics)
- Living will: A type of advanced health care directive, this document is used to communicate your wishes for end-of-life care to doctors and loved ones in the event that you are incapacitated. It is an essential part of your estate plan because it allows you to state your preferences for life-prolonging health care and takes the pressure off your loved ones who would otherwise be forced to guess what you might have wanted during a period of grief — a common scenario that often results in family infighting. (Related: Types of wills)
- Health care power of attorney: Another type of advanced health care directive, also known as a health care proxy, this document allows you to designate a trusted person to make medical decisions for you if you are not able to do so for yourself. It is wise to work with an attorney who is licensed in your state to draft this form, as laws surrounding health care power of attorney documents may differ.
- Durable financial power of attorney: This legal document is used to appoint a trusted person to make financial decisions on your behalf if you are unable to do so. Such documents enable you to plan for medical emergencies today, as well as cognitive decline later in life. Sebell said power of attorney documents are particularly important. “If you were sick and couldn’t advocate for yourself, would you really want no one that you trust to have the legal power to make sure your doctors are taking care of you properly, or making sure your bills get paid on time?” he said. “I think it’s important to help people truly conceptualize what is at stake here.” (Related: Avoiding power of attorney problems)
- Beneficiary designations: It’s not enough to name heirs in your will. If you own a retirement account or life insurance policy, which for many are their largest assets, it is critical that you also name beneficiaries for those accounts — and update those beneficiary forms after every major life event (birth, death, marriage, or divorce). Why? Whoever is named as beneficiary to these accounts receives that money when you die, even if it conflicts with the beneficiaries named in your will. (Related: Beneficiary mistakes)
Mass said those doing estate planning should also create a list of the financial, tax, and health care professionals they are working with, draft funeral preparations, and consider long-term care provisions.
If you intend to leave assets to charity …
Singles are often highly focused on leaving a financial legacy behind.
In fact, a 2023 analysis of estate plans completed on the FreeWill online platform shows that single men and women gave 60 percent of all bequest dollars committed to charity, while married individuals left 38 percent of all dollars bequeathed. The remaining 2 percent of bequests came from couples in a domestic partnership.2
Overall, single women with pets were the most likely demographic (26 percent) to leave assets to charity in their wills. (Related: Caring for pets after your death)
If you’re planning to leave assets to charity, keep the tax treatment of your accounts in mind.
Some financial professionals recommend leaving pretax assets to charitable organizations, such as 401(k) accounts and traditional IRAs, because your estate would not owe income tax on the assets when you pass away and the charity would potentially receive that money tax-free.
Another tax-efficient gifting strategy during your lifetime is to consider donating appreciated stocks or real estate that you have owned for more than a year, which may enable you to avoid the capital gains tax and effectively gift up to 20 percent more than you would by selling the asset and donating the proceeds. Or, consider transferring ownership of your permanent life insurance policy. (Related: Using life insurance for charity)
An estate planning attorney can help you determine how best to maximize your legacy.
Conclusion
If you’re single and you don’t think you need an estate plan, think again. We all need legal documents to help protect our assets and our interests during our lifetime and after we’re gone.
“All individuals, including singles, need an estate plan as most people want to either leave something to someone or make sure their wishes are carried out,” said Mass.
Discover more from MassMutual…
Estate planning: 6 big mistakes that can cost you
How to avoid family fighting over an inheritance
Need a financial professional? Find one here
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1 Pew Research Center, “A record-high share of 40-year-olds in the U.S. have never been married,” June 28, 2024.
2 FreeWill, “2023 Planning Giving Report.”
