Recently, during a conversation with a single-parent friend, I realized I'd been overlooking a significant segment of my reading audience in this column. Lots of you are raising children by yourselves and might benefit from financial advice specific to your unique needs.
When you complete your tax return each year, remember that your child's Social Security number will be included on the form. If you need to change your filing status—perhaps from single or, if recently divorced, from married, to head of household—be sure to do so. Consult with your accountant, if you have one, prior to submitting your return to be sure what you are indicating on your forms is proper and most advantageous based on your family's situation.
Tax time also presents a prime opportunity to compile a “net worth statement”—a sort of “snapshot” of your finances. This statement should consist of all your financial accounts or assets (checking, savings, 401k, 529 plan, house value) along with any outstanding debt, or liabilities (mortgage, student loan, car, credit card). Assets minus liabilities equals net worth.
On my net worth statement, I include my account numbers and the websites of the financial institutions in which the accounts exist. Simply including on this statement that I have a particular bank account is good, but where exactly is the money? Creating this report as you prepare your taxes will help facilitate the process for your accountant, as well.
When it comes to my next three suggestions, although there are do-it-yourself websites that can help guide your through these processes, I recommend working with a licensed attorney in your state. If you choose to use one of those websites, however, I strongly urge you to review what you produce with an estate planning attorney, to ensure you've done what you intended to do.
Write a will. A will specifically details your wishes at your death, describing how your debts will be paid and defining each person, organization, and charity that you wish to receive the remaining assets. Your will may include where you want to be buried and any personal/ethical information you wish to share. Even if you have a will, your estate will go through probate, but the judge will follow your directions rather than making his or her own distribution decisions.
Designate or appoint a guardian, in writing. Have you thought about who would step in to parent your children in case something happened to you? As part of your will, you should appoint a primary person or persons to care for your children and make all related decisions (medical, financial, educational, and so on) in the event of your death, for as long as your children are minors, or perhaps even longer, depending on their needs.
In many cases, people designate their own parents as guardians. However, you must decide for yourself if Grandma and Grandpa are indeed the “best choice” for your family. Do they have chronic health concerns? Are they out of state (meaning your children might need to be relocated, leaving their school and friends, while perhaps still grieving your death)? Do they share your parenting style and values? Could they afford to raise your kids over the next 15 to 18 years, if they were to assume guardianship of them when they are still very young? Some people may decide to name a sibling or close friend as guardian instead, and that's fine, too.
Prepare a durable power of attorney. With your attorney's help, appoint an agent to have power of attorney, empowering him or her to manage your financial affairs, make health care decisions, and conduct other business for you during an incapacitation, whether a short-term stay in the hospital or in the event you develop a long-term illness. Give serious consideration to whom you grant this power, as this person will be able to spend your money without restraint.
My successor power-of-attorney agent (second in line after my spouse, if he is unable to serve) is also my children's designated guardian; I want the person raising my kids to have seamless access to my money. I find peace of mind knowing my children will have the person I chose and respect as a backup parent if anything ever happened to me or my husband.
That is a personal decision, however. Other people may prefer to name one party as guardian, while granting another power of attorney, perhaps to ensure a “second opinion” remains in place—a system of checks and balances, so to speak. Regardless of whom you grant power of attorney, however, you should share your net worth statement each year with that person so that he or she understands the financial role you may call upon him or her to perform.
Lastly, make sure the account beneficiary information on all your accounts is updated, helping to smooth the financial process and bypass probate by directing asset transfers at your death. If you were once married and are now separated or divorced, be sure to revise your beneficiary instructions according to the settlement or divorce decree immediately. If you don't, your ex-spouse may be in line to receive your assets rather than your heirs. Take time to plan accordingly, especially with blended families (those in which there are stepchildren and half-siblings), where it can get particularly tricky. Call any time for help. BC
Annie Morrison is an independent advisor representative with and securities and advisory services offered through Commonwealth Financial Network, a Registered Investment Advisor, Member FINRA/SIPC. Zuma Financial Advisors is located in Reisterstown, MD. Email her, at [email protected], or call (443) 468-3280.
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.