It goes without saying that everyone needs an estate plan, but the fact is that only about 40 percent of American adults have one. It’s important to set this up while you’re still mentally competent, so that you can be sure that your estate is distributed in line with your wishes – and that decisions are being made by someone you trust. For women, this documentation is especially important. As we’ve previously discussed:
- Women are almost four times as likely to be widowed.
- Women are living longer than ever before, extending widowhood.
- More women than ever before are divorced or choose not to marry.
As a result, if you’re a woman, you’ll likely be managing your finances on your own at some point and will be responsible not just for the ultimate disposition of your wealth (if you’re single), but for your spouse’s as well (if you’re married). This task is complicated by the otherwise good news that there is more money than ever before for women to manage:
- Many women are inheriting twice – from parents and then from a spouse.
- More women own businesses or are entering professions with higher salaries such as doctor, lawyer, or business executive.
There is no question about it: women have become a major force in the changing financial world. With the ownership of assets comes attendant responsibilities:
- Conserving and using wealth to secure maximum benefits during life.
- Arranging the orderly distribution of assets according to family and charitable objectives.
- Creating plans to minimize estate taxes and settlement costs.
- Ensuring that sufficient cash and other liquid assets will be available to pay estate taxes and settlement costs.
Failure to plan can lead to unnecessary negative consequences for loved ones: distribution of assets to unintended beneficiaries, excessive and unnecessary tax liabilities, and forced sale of assets at sacrifice prices to raise funds to pay inheritance taxes and other estate liabilities.
As such, a woman must plan her estate not only to ensure her own financial security and that of children or other family members, but also to ensure the proper distribution of her assets to family members, friends, and charitable organizations.
What Married Women Need to Know
In addition to reasons such as procrastination that keep both men and women from having a will, other factors may keep a married woman from executing a will. For example, a wife may assume that she does not need a will if her spouse has one, or she may think she simply does not have sufficient assets in her own name to warrant making a will. Such assumptions can be very costly because they ignore the possibility that the wife will survive her spouse, and therefore, in most cases, receive the bulk of her spouse’s estate, possibly a sizable one.
When a married woman has an estate of her own, the need for a will to distribute assets in accordance with her personal objectives is apparent. Equally important is the need to coordinate her will with her spouse’s.
By coordinating estate plans, spouses can plan to distribute their assets in the most effective manner to meet shared goals.
What Single Women Need to Know
The transfer of an estate to beneficiaries can be more expensive for a single woman because she lacks the benefits of the marital deduction. Nevertheless, she has many planning tools available, both living and testamentary, to reduce the effect of transfer taxes.
The charitable remainder trust not only pays income to loved ones, but also provides a future gift to charity and potentially saves gift and estate taxes. After paying income to the beneficiaries for life or a term of years, the trust would distribute the principal to one or more charities.
A single woman could also direct the payments to herself. She would receive an income-tax charitable deduction that would reduce her current income tax and have the satisfaction of providing a future charitable gift.
These are just some of the concerns and considerations that go into the creation of an estate plan, but that demonstrate the value of having one in place before it’s too late. An advisor can work with you to ensure your wishes are carried out in the most beneficial way possible.