Throughout the 1990s and into the early 2000s we have seen the further evolution of the definition of the "family." Demographics have forced a change in the perception of what exactly is an American family.
Single-parent households, unmarried couples, individuals living alone and other alternative lifestyle arrangements are becoming the norm rather than the exception. Each of these social units presents unique financial planning problems that do not fit into "cookie-cutter" recommendations.
Single-parent families face many of the same financial problems that are posed for traditional families, yet with an added level of urgency. Disability planning for such parents is crucial because there is no live-in back-up to rely on for a source of income in the case of an event where the single parent is unable to provide.
The extent of the risk of a serious injury or illness affecting your ability to earn a living is startling.
The probability of a 35-year-old being disabled for more than three months before age 65 is more than 50 percent. People in their 40s are three times more likely to be disabled than die before age 65. And the numbers get worse as you get older for remaining disabled for five years or more.
Yet a great majority of the population has no disability coverage beyond Social Security and workers' compensation
Protections in place
Durable powers of attorney for property management and health care directives as well as adequate insurance coverage can be saviors in such events.
A power of attorney is used to give one person the right to act on another person's behalf. The person who grants the power of attorney is called the "principal." The individual who is given the power is called the "attorney-in-fact." With a durable power of attorney, the principal designates another to make health care decisions in the event of the principal's incapacity.
Trusts with reliable successor trustees can also be useful tools to address potential problems. Under a trust agreement, the grantor transfers cash and/or assets to the trustee and gives the trustee instructions regarding the distribution of the income and principal of the trust to the beneficiaries. The trustee is a fiduciary who must follow the instructions of the grantor with respect to the investment of trust assets and all distributions.
Adequate life insurance should be present to provide for future educational, child care, home and health care expenses of the children.
The financial planning challenges that confront the long-term bachelor/bachelorette are similar to those of the single parent. Disability planning is a primary consideration.
Yet, basic estate planning is also important. Without a will or other tool to provide direction in the distribution of a single individual's estate, the deceased's property will pass according to the respective state laws of intestacy. This may be wholly opposite of the deceased's wishes.
In the case of unmarried couples, these problems are especially prevalent. Neither state laws of intestacy nor the Internal Revenue Code recognize or offer any benefits to "life partners."
For example, despite the fact that local law may recognize the concept of life partners (heterosexual or not), the tax code does not provide transfer tax "marital" deductions based on these relationships. There is no such thing as leaving all to your pseudo-spouse tax free as with traditional married couples. Thus, life insurance can play an even greater part to meet potential estate taxes.
Further, in cases of incapacity where property and health decisions must be made, or where property is distributed away from a decedent's immediate family, advanced financial planning can ward off upset family members.
Many of these unusual financial planning problems arise because of conscious lifestyle decisions. But many arise due to chance or fate.
Yet, the basic financial goals are the same. Each of these groups must
balance their current lifestyle and finances with their future goals and needs. Each must invest their assets effectively to accomplish set goals. Each needs to protect against emergencies and hardships.
Finally, each needs to decide what they want to leave behind, to whom they want to leave it, when to leave it and the most effective means of doing so.