Tax Connections Newsletter – Fall 2023
Robert Swenson

Even single people without children need an estate plan

Estate planning is important for everyone. This is equally true for single individuals without children. While the law makes certain assumptions involving a married couple regarding financial and medical decisions should one spouse die or become incapacitated, that is not necessarily the case with a single person. Indeed, without an estate plan, undesirable tax consequences could be more likely for single individuals without children.

Asset distributions

It is critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain assets can pass to your intended recipient through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.

Those laws vary from state to state, but generally they provide for assets to go to the deceased’s spouse or children. For example, the law might provide that if someone dies intestate—without a will—half of the estate goes to his or her spouse and half to the children.

If you are single with no children, however, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. If you have no living relatives, your assets may go to the state. By preparing a will, you can better ensure that your assets are distributed according to your wishes, whether it is to family, friends or charitable organizations.

Financial and medical decisions

It is a good idea to sign a durable power of attorney that appoints someone you trust to manage your investments, pay your bills, file your tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court would have to appoint someone to make these decisions on your behalf. Not only will you have no say in who the court appoints, but the process can also be costly and time consuming.

You should prepare a living will, a health care directive (also known as a medical power of attorney) or both to ensure that your wishes regarding medical care — particularly resuscitation and other extreme lifesaving measures — are carried out in the event you are incapacitated. These documents can also appoint someone you trust to make medical decisions that are not expressly addressed.

Absent such instructions, the laws in some states allow a spouse, children or other “surrogates” to make these decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.

Gift and estate taxes

When it comes to taxes, married couples have some significant advantages. In particular, the marital deduction generally allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities. Further, married individuals generally are able to take advantage of estate portability.

For single people with substantial assets, it is important to consider employing trusts and other estate planning techniques. These tools can be used to avoid, or at least defer, gift and estate taxes.

Related Read: An Estate Plan Benefits You and Your Family

Revise as needed

If you are currently single and have no children, contact your estate planning advisor. An experienced professional can help draft a basic estate plan based on your current situation. You can then revise it as major life events, such as marriage or the birth of child, happen.

Saving made easy

Set aside funds for your children with custodial accounts

Are you seeking options for helping your minor-aged child save for college or other expenses in a tax-efficient manner? A custodial account may be the answer. In a nutshell, it is a financial account for children under 18 that is opened and controlled by their parents or grandparents. Let’s take a closer look at two types of custodial accounts and detail their pros and cons.


One of the simplest ways to invest on your child’s behalf is to open a custodial account under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). These accounts — available through banks, brokerage firms or mutual fund companies — are owned by the child, but managed by the parent or another adult until the child reaches the age of majority (usually 18 or 21). When the child comes of age, they take over ownership and control of the account.

The biggest difference between a UGMA account and a UTMA account is that the UTMA covers more assets. For example, with a UGMA account, you can include assets such as stocks, bonds and mutual funds. With a UTMA, you can also include such assets as real estate, jewelry and art. 

Pros and cons of custodial accounts

One of the biggest advantages of using a custodial account is its flexibility. Indeed, unlike some savings vehicles, such as Coverdell Education Savings Accounts (ESAs), anyone can contribute to a custodial account, regardless of their income level, and there are no contribution limits. Also, there are no restrictions on how the money is spent. In contrast, funds invested in ESAs and 529 plans must be spent on qualified education expenses, subject to stiff penalties on unqualified expenditures.

Contributions to custodial accounts can also save income taxes. A child’s unearned income up to $2,500 per year is usually taxed at low rates. (Income above that threshold is taxed at the parents’ marginal rate.)

On the downside, other savings vehicles can offer greater tax benefits. Although custodial accounts can reduce taxes, ESAs and 529 plans allow earnings to grow on a tax-deferred basis, and withdrawals are tax-free provided they are spent on qualified education expenses. There may also be financial aid implications, as the assets in a custodial account are treated less favorably than certain other assets.

Finally, there is a loss of control involved with custodial accounts. After the child reaches the age of majority, they gain full control over the assets and can use them as they see fit. If you wish to retain control longer, you are better off with an ESA, a 529 plan or a trust.

Determining whether a custodial account is right for you requires an assessment of your financial circumstances and investment goals. Your financial advisor can help make the right call.

Related Read: What to Know About Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) Custodial Accounts

For more information, contact Rob Swenson at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Tax Services.

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