First let me emphasize again that I’m not offering professional advice here. This is just a skimpy overview of often complicated matters — matters that single parents need to think about.
For professional advice that applies to your situation, see the appropriate specialist (attorney, tax professional, financial planner, insurance professional, bank trust officer).
Life and Long-Term Disability Insurance
Experts say that the typical young family should own life insurance that equals five to 10 times the household’s annual income. This is especially important if you, as a single parent, are your children’s sole financial support. The purchase of term life insurance, which is cheaper than whole life insurance (also called cash value or permanent insurance), is usually recommended.
Long-term disability insurance is important too and should be considered. It replaces your income if you become disabled by a sickness or injury and are no longer able to work.
Wills
Who will raise your children if you die while they’re still minors? If you want to be the one who makes that decision, then it’s essential that you have a will.
Many people think that wills are only needed if you have a lot of money or property to leave to your heirs. It’s true that a will does allow you to name an executor — a person who will manage the distribution of your assets — as well as to specify how you’d like your assets distributed. If you die without a will, then your state will make these decisions.
But as a parent, there’s a much more critical reason to have a will: it enables you to designate the person whom you want to be your minor children’s guardian. If you die and no one’s been named, then your state will appoint a guardian.
Similarly, if your children are underage when you die, then you’ll want their inheritance to be managed by someone you know and trust until they’re mature enough to handle this responsibility themselves. Again, you can name this person in your will.
Custodial Accounts and Trusts
In the event that your children are minors when you die, you can decide now how the assets they’ll inherit from you will be managed — and by whom. We’ll briefly review two typical methods.
One way to leave property to your minor children is to set up custodial accounts for them according to the provisions of a state statute, the Uniform Transfers to Minors Act. Children may usually receive the property at age 21.
A trust may be a good choice if your assets are more complex. The trust will hold the assets and the children may receive them either a) when they reach a certain age or b) a portion at a time, at specified ages.
Advance Directives
An advance directive is a legal document that tells your physician the kinds of treatment you would want if you develop a terminal illness or become permanently unconscious. It also describes the kinds of treatment that you wouldn’t want.
Two types of advance directives include:
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* A living will is an advance directive that takes effect only if you have six months or less to live or are permanently unconscious.
* A do not resuscitate order (DNR) is a request that cardiopulmonary resuscitation (CPR) not be performed if your heart or breathing stops.
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Other Directives
Other kinds of directives allow you to appoint representatives to act on your behalf. These include:
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* An advance health care directive (also called a durable power of attorney for health care), which allows you to name someone to make health care decisions for you if you’re unable to make them yourself.
* A durable power of attorney, which designates someone to handle financial matters for you if you’re unable to do so.
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It’s tempting to postpone these kinds of decisions; but keep in mind the potential consequences if you die without having made them.