What Does This Article Cover?
It's official: There's no longer anything typical about the "typical" American family. According to the latest census figures, 38 percent of American children are being raised outside the traditional two-parent family. Gone are the days when mom, dad and a couple of kids were the norm. Instead, the definition of family now 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.
The difference between the 1970 and 2000 census is startling. In 1970, married couples comprised 71 percent of all households. By the 2000 census that number had shrunk to 53 percent. An August 2004 article in online Financial Planning magazine states, "it's the traditional nuclear family that is the anomaly today. According to the article, only 24% of the 105 million U.S. households consist of married couples with kids."
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
Legally 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 benefits, and passing assets and property at death. For example, traditional married couples enjoy the benefits of the unlimited marital deduction that enables spouses to make unlimited transfers to each other during their lifetime and at death without transfer tax consequences. Unmarried people are limited to giving no more than $11,000 per year to another person without paying gift taxes. And they can transfer only $1 million at death before triggering a taxable event. The path is not nearly as smooth for non-traditional couples. They 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.
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.
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 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.
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 insurance.com, 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.
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.
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. According to a 2001 survey by Comfort Personal Cleansing Brands a leading healthcare product company, two out of every three baby boomers believe they will be a caregiver for an elderly parent or family member in the future and fully two thirds of those plan to provide that care at home.(www.comfortbath.com/bbsurvey.cfm)
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. The Agency for Healthcare Research and Quality (AHRQ) estimates that by 2025 the number of Medicare beneficiaries will reach 69 million, representing more than 20 percent of the U.S. population.
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, nearly 50% of all Americans may need long-term care at some point during their lifetime.(Health Insurance Association of America, A Guide to Long-Term Care Insurance, 2002, Page 5.)
Today, about one in five Americans over the age of 65, and almost half of those age 85, need assistance with everyday activities. And if you believe that Medicare is covering the cost of these services, think again.(American Council of Life Insurers, Long-Term Care Insurance Protection for Your Future, 2001, Page 2.)
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.
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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