Having children isn't for everyone. America's fertility rate has been declining, and in 2018, the number of babies born in the U.S. fell to its lowest rate in 32 years. The numerous reasons behind the falling birth rate include couples' concerns about their finances, insecurities about their parenting skills, worries about global instability and climate change, and just plain not wanting kids.
If you and your spouse are child-free, you may think you don't need to think about comprehensive estate planning -- but you'd be wrong. You'll still want to ensure your assets go where you'd like them to after you're gone, rather than being divvied up by the state. But the emphasis of your financial legacy may be quite different from what it would be if you were parents.
You may want to leave some of your wealth to friends, beloved family members, charitable organizations, or your alma mater. Regardless of the beneficiaries you choose, these five estate planning tips are essential for childless couples.
Tip 1: You absolutely need a will
It's important for couples without kids to have wills because they don't have natural heirs to inherit their wealth.
Generally speaking, if you die without a will, your assets will go to your spouse. But what if both you and your spouse die simultaneously in an accident? Or what if you die first and your spouse dies shortly thereafter? Then your spouse's will would determine who gets what.
And if neither of you has one, it will be up to a probate court to decide whom among your family should inherit what. Your entire legacy might wind up going to your spouse's sister. (You know, the one who never treated you kindly?) You need your own will to make your wishes known.
Not having a will is rather common: 64% of people don't. But if you die without this crucial document, the state in which you live will determine where your property goes. And the state has no idea that you wanted to leave your money to your best friend, a helpful neighbor, or a favorite charity.
Tip 2: Get empowered through a power of attorney
Who's going to make financial decisions for you if you and your spouse become incapacitated? You can choose someone via a power of attorney (POA).
Through this document, you can appoint someone to handle things like paying bills, managing your investments, and dealing with property matters if you're unable to do them yourself. This person will have a fiduciary responsibility to act in your best interests, but they'll also have a lot of unfettered ability to act on your behalf -- so make sure you choose someone you really trust.
There are three types of POAs:
- Durable POA: Starts when you sign it and will remain in effect throughout your lifetime, even if you become incapacitated. You can specify specific areas that your POA will cover: investments, banking, real estate, etc.
- Springing POA: With this type of document, you determine when it goes into effect (for instance, if you become incapacitated). Clearly specify what the "springing" event would be so there's no confusion.
- General POA: Goes into effect once you sign it, and you can rescind it, but it ends if you become incapacitated.
Tip 3: Keep your beneficiaries current
If you have retirement accounts or life insurance policies, the distribution of assets upon your death will be determined by a beneficiary designation, not by your will. If you have both a will and an account with a named beneficiary, the latter will determine where those assets go.
One of the most-common beneficiary errors is not keeping those designations current. But there are many others, so make sure you know what they are so that your heirs receive what you intend them to.
Tip 4: Leave money to charity the right way
If you have no children, you may want to leave your assets to organizations that have enriched your life. Think your college or high school alma maters, NPR, your religious institution, the ASPCA, etc.
Several types of trusts can be used to ensure that your money goes where you want it to. One is a charitable remainder trust, which allows you to live off the trust's assets; when you die, the remaining balance goes to the charity of your choice. Another is a charitable lead trust, whereby the charity can use all the income that the trust generates until you pass, at which point your will determines who gets the money (see No. 1 above).
There are several ways to structure charitable donations, so it's important to consult an estate planning attorney, who can help ensure those organizations get the most benefit from your bequest.
Tip 5: Don't forget to plan for your pets
Many child-free couples have pets that they love as much as they would a child. If you're among them, it's imperative to plan for their care when you're not there to tend to them yourself. It's a serious issue: 500,000 animals are euthanized every year because their owners didn't have a plan for them, according to The New York Times.
You could designate someone to take care of your animal in your will, but that person may not want the responsibility. So if that's the path you intend to choose, make sure beforehand that the person you've picked agrees to be your pet's caretaker.
You can also put money into a trust specifically intended for the animal's care, or designate an organization that will provide lifetime care for your pet with money you assign to that purpose. Nonprofits like paws.org, for example, will provide lifetime care for your animal if you designate them in your will. Contact the organization directly for more information.
If you're living a life without kids, you may be enjoying a number of benefits -- more money to spend on yourselves, fewer headaches. (After all, not everyone is cut out to change smelly diapers or cope with rebellious adolescents.) But one thing's for sure: Child-free couples need an estate plan just as much as couples with offspring. So don't dillydally -- start your planning today.