Single parents and estate planning

I've noticed that single parents tend to find the estate planning process very stressful, but are among those most relieved and happy once the right solutions have been put into place. Having the planning expertly done and documented can definitely bring peace of mind.

There are specific issues that concern single parents as they plan their estates. The first and foremost is always custody of younger children. If the child's other biological parent is still alive, he or she would most likely have custody if the single parent passed away, but single parents should always designate someone as an alternate to act as guardian if need be. If the idea of your ex having custody is a nightmare, see my earlier blog post called What if I don't want my ex to be my children's guardian?

The choice of executor of the estate is similarly less obvious. Without a spouse to name as executor, the single parent must look a little further afield to find someone trustworthy and able to take on this job. Many single parents think automatically of their own parents for this role, though I am not generally in favour of a person having an executor who is a generation older.

A single parent must have an Enduring Power of Attorney to appoint someone to deal with property and finances, and a health care directive to appoint someone to make medical decisions. Once the children are older they may be able to take on these roles, but while they are younger, naming the right person can be a challenge. Siblings and close friends are good choices. For financial decisions and executorship, a trust company is often a reliable, affordable option.

Single parents normally leave their estates to their children. They need to consider whether the division among the children will be equal or otherwise, at what age the children will receive their inheritance, and who will manage the money in the meantime. They must be realistic about the household in which the children will be brought up. If the children don't inherit until, say, age 21, what are they living on in the meantime? Talking out the logistics of leaving an estate to children with an estate lawyer is an eye-opening experience for most single parents.

A single person is less likely to own property in joint names than is a married person. Also, a single person is not going to be able to take advantage of certain tax breaks like rolling over an RRSP or RRIF to a spouse. Because of this, it's very important that a single parent have a clear understanding of the potential tax consequences of passing on his or her assets. Once the tax picture is clear, the single parent may wish to consider strategies to reduce taxation or ensure that there is enough cash available to pay for unavoidable taxes.

This could mean putting life insurance into place. Single parents should discuss the pros and cons of naming their estate as beneficiary of a life insurance policy vs. naming their children directly.

If the children are young and the single parent is receiving child support under a court order or agreement, the parent should have the document reviewed by an estate planning lawyer to see whether the support will continue after the parent's death. Similarly, a single parent who is paying child support should have a clear knowledge of what, if any, responsibility will fall on his/her estate to fulfull a support obligation.

Some single parents own a family cottage or rental property together with a sibling. This has usually been handed down from their own parents' estate. The single parent needs to understand what, if anything, their own children will receive out of this arrangement. Most people I've met in this situation are shocked to discover that they own the property jointly with their sibling and that there will be nothing to hand down to their children unless the single parent is the last current owner left alive.

Single parents who are also business owners may be able to put strategies such as an estate freeze or a farm rollover into place to transfer their business to one or more of their children. This is something that should be planned well in advance with the parent's accountant or lawyer. And, as with all business owners, the single parent may want to discuss ways to leave an inheritance to other children if the business is being left just to one child.