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New Solutions for Non-Traditional Families Facing Traditional Financial Concerns

What Does This Article Cover?
  • How can non-married couples create financial security?
  • What role does life insurance play for non-traditional families?
  • What role does long-term care and disability insurance play for non-traditional families?

It's official: There's no longer anything typical about the "typical" American family. According to the latest census figures, married couples represent just 48 percent of American household. In a May 26, 2011 article, the New York Times called the news, "a milestone in the evolution of the American family towards less traditional forms." Indeed, according to the data released by the Census Bureau and analyzed by the Brookings Institution, only 20% of the hosueholds are traditional families--married couples with children-- down from 43 percent in 1950. Today, the definition of family embraces many different configurations, including, but not limited to: step-parents, single parent households, adoptive parents, same sex marriages with and without kids, foster parents, grandparents or aunts and uncles caring for children, and adult children living with and caring for their parents.

As the definition of "family" continues to evolve, it becomes clear that every family has its own financial needs and concerns. Today's non-traditional families desire the same peace of mind as traditional families when it comes to protecting and passing on assets to future generations. Financial services companies are responding to these needs by making their sales forces more aware of the challenges faced by non-traditional families and helping them create solutions that provide financial stability.

Below is a brief description of some of the issues faced by non-traditional families and the steps they can take to create financial peace of mind. It is by no means comprehensive, but provides a sampling of non-traditional situations. Many of the steps require working with an attorney to ensure necessary legal documents are drafted and filed correctly.

Steps Everyone Should Take
No matter what form your family takes, there are a couple of steps everyone should take to ensure their intentions are fulfilled when it comes to providing for others, as well making decisions about your medical care if you are unable to do so.

Draft a Will
Everyone needs a will. This is especially true for unmarried couples or single parents A will enables individuals to express their desires for the distribution of their assets, as well as resolve any potential issues regarding guardianship of minor children. If you die without a will, your estate will automatically pass to your next of kin through the probate process according to laws of your state. For unmarried couples or single parents, that might not be your first choice. Without a will, the surviving partner of an unmarried couple, for example, probably has no legal right to inherit any part of the deceased partner's estate. If there are minor children, judges will usually give great weight to the guardian-preference stated in the will.

Durable Power of Attorney
With a durable power of attorney, if you become ill or injured and unable to make decisions about your medical care, you can designate someone on your behalf to carry out your wishes, including the instructions in a living will. For those who are not married, this can be particularly important. Without one, the next of kin, whomever that may be, or even the doctor, will make those decisions for you. An unmarried partner, for example, probably will not have the legal ability to make those decisions for his/her partner. A power of attorney ensures your partner, or whomever you designate, can make those decisions. It can also ensure the person you designate gains access to your medical records.

Steps for Non-Traditional Couples
Traditional married couples enjoy over 1,000 rights and benefits of marriage at the federal and state levels. Some of these advantages take the form of qualifying for certain benefits, and the ability to transfer assets more tax efficiently to each other during life and at death. For example, traditional married couples enjoy the benefits of the unlimited marital deduction that generally enables spouses to make unlimited transfers to each other during their lifetime and at death without transfer tax consequences (assuming they are both U.S. citizens). The path is not nearly as smooth for non-traditional couples. They do not have this benefit. Under current law, aperson is entitled to an annual gift tax exclusion amount of $13,000 per year and a lifetime gift tax exclusion amount of $5 million. This lifetime exclusion amount is scheduled to decrease to $1 million in 2013. Unlike in the context of traditional married couples, transfers between non-traditional couples in excess of these limits would generally be subject to transfer tax costs. Non-traditional couples are often forced to craft their own financial security, to ensure that their financial arrangements reflect the quality and commitment of their relationship and provide security for such issues as ongoing living arrangements, access to retirement accounts, and guardianship for minor children.

Domestic Partner Agreement
One important step for unmarried couples to take is to establish a domestic partner agreement. This is a written contract, like a will, between you and your partner that supports your rights to certain property and intentions for the distribution of property if the relationship ends or one of you dies.

Property Ownership
To ensure that property non-married couples own together passes smoothly at the death of the first partner, many couples establish ownership as joint tenants with right to survivorship (JT/WROS). Under this titling method, the surviving partner gets the house or other property without having to pass through probate, although it may be subject to estate taxes.

Retirement Plans
Unlike a surviving spouse, the unmarried partner is not entitled to receive any portion of the deceased partner's retirement account unless specifically designated as the beneficiary. If their retirement plans permit, unmarried partners can name each other as beneficiaries of their 401(k) plan, 403(b), or personal IRA. Also, the assets may be subject to estate taxes at the death of the first partner.

Life Insurance
Life insurance can fulfill a number of needs for unmarried couples. First and foremost it can be used to pass on assets while maximizing estate tax savings. The proceeds can be used by the surviving partner to pay off a mortgage, or cover living expenses, or to pay estate taxes. They can also be used to help supplement the surviving partner's retirement and provide significant replacement income.

Of course life insurance is important if there are minor children and there would be insufficient assets to care for them.

Life insurance can also be used in situations where one partner has grown children and wants to make sure the other partner can maintain their shared residence. The children can be named as the beneficiaries, making it clear in the will they are receiving the insurance benefits in lieu of the house.

Unmarried couples, however, may have difficulty proving an "insurable interest," that is, that the surviving partner would be hurt financially by the death of the other partner. A written domestic partner agreement can often satisfy this requirement. Many couples transfer ownership of the policy either directly to the intended beneficiary or transfer the policy(ies) to an irrevocable trust. Always check with your attorney, tax advisor, and estate planning professional to make sure your policies are structured properly.

Steps for Single Parents
Single parents have a different set of concerns including a need for disability insurance.

Life Insurance
If you are a single parent, life insurance is a necessity. Just how much you'll need will depend on how many children you have, your income, your current assets and other factors. According to an article on, 6-8 times your annual salary is a good guideline for estimating how much insurance you will need. It may be a problem to name minor children as beneficiaries for your policies. A court will require a guardian be appointed and a single parent may want to establish a trust to receive the proceeds and then pass them on to the children. Single parents especially should make sure they have a will with the guardian for minor children specifically named.

Disability Insurance
Without disability insurance a single parent household can go from prosperity to facing ruin practically overnight. A disability policy will replace at least part of the income you would lose if you couldn't work because of an accident or other reason. Some employers provide disability coverage, but many people also buy a supplemental policy.

Step Parents
One of the most important issues facing step-parents is how to provide for the all the children as equitably as possible. Life insurance is one way step-parents can be sure they equalize inheritances.

Parents Living with Adult Children
Another non traditional family that is growing every year is parents living with their adult children. The number of parents, siblings and other relatives who live with adult heads of households grew 42% from 2000 to 2007, according to 2009 data from the U.S. Census Bureau. Leading the way: parents, up 67%, to 3.6 million. And many of these adult children are providing care to their aging parents.

What are these caregivers doing? Typically, they spend 18 hours a week taking the person they care for to doctors, managing the elder's finances, and providing hands-on personal care. Many of these caretakers are employed and must make workplace accommodations, such as passing up promotions, to provide care.

And the elderly population is only going to increase. According to the February 2011, Henry Kaiser Family Foundation Report, net Medicare enrollment growth is expected to average more than 1.6 million beneficiaries annually between now and 2030 and the program will reach a total of 80 million enrollees in 2030- double the number of enrollees in 2000.

Most of us strive to live active, healthy lives well into our later years, and indeed as a society, Americans are living longer than ever before. By 2025 people over age 80 will comprise the fastest growing segment of the population, according to AHRQ.

This extended longevity is one of the things that drives the growing need for long-term care — the longer we live, the better the odds that we may need long-term care services. In fact, about 69 percent of Americans turning 65 today will need long-term care at some point in their lives, according to LeadingAge, a Washington-based lobbying group that represents nursing and retirement homes. from an estimated 40 million in 2010, according to the U.S. Census Bureau.

When it comes to creating their own financial security, it may take a little more work for non-traditional families to provide the clarity and financial security that is more readily available to traditional families — but it can be done.

Financial Security is Within Reach
New York Life agents are trained to help all families, both traditional and non-traditional with their life insurance, retirement planning, estate planning and, in many case, long-term care needs. Click here to request a no-obligation review with a New York Life agent.

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New Solutions for Non-Traditional Families Facing Traditional Financial Concerns

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