A single parent by choice (SPC) is a person who intentionally becomes a parent while unpartnered, knowing that they will be a solo parent of that child. They become a parent through conception with the assistance of a donor, or through fostering or adoption. People of all genders can be a SPC, though it is currently more frequent among women aka single mothers by choice or choice moms (commonly abbreviated as SMBC or SMC).
Single Parents by Choice need to ensure their estate plans protect for their children because there is no other parent to provide for them. In addition, because SPCs tend to be more financially established before becoming parents, SPCs also need to protect the assets they’ve accumulated.
Role of known sperm donor
Unlike in cases of adoption or even with using an egg donor, there are some special concerns that single mothers by choice if she used a known sperm donor to conceive. In California, a known donor not considered a legal parent as long as certain conditions are met, such as not including the donor on the birth certificate, entering into a donor contract before conception and conception of the child was not the result of intercourse. If the conditions are not met, then the sperm donor may have legal rights over the child, including the right to gain custody of the child following the death of the SMC. If the known sperm donor is considered a legal parent of the child, then he does not need to establish a guardianship of the child following the SMC’s death because he automatically gains full legal custody of the child despite any nomination of guardians by the SMC or the SMC’s wishes.
Nomination of a guardian
It is extremely important that a single parent by choice names a guardian for their minor child. Unlike with divorced parents or unmarried co-parents, there is no other parent or anyone else with legal rights to that child.
In fact, pregnant single mothers by choice should consider consulting with an estate planning attorney before the child is born. While rare, complications can occur during childbirth which may leave a baby orphaned. It would be unfortunate for a much-wanted baby to enter the foster care system because there is no guardian nominated.
Living trust
If an SPC owns a house, then the SPC should definitely have a living trust prepared by an estate planning attorney. As with any other homeowner, SPCs want to have a living trust to hold the title to their real estate in order to avoid probate. A living trust can also include a minor’s trust to hold all the assets so that the child inherits the house or the sale proceeds.
Minor’s trust
Generally, a parent will want to leave all of their belongings to their children. But they don’t want the child to be given everything at age 18 without any conditions. Imagine an 18-year-old with $1 million dollars and it’s understandable why a trust is preferred to delay distribution. A minor’s trust can specify that the principal may be used for education (college) while the rest of the money stays in the trust until the child reaches a certain age like 25 or 30.
Beneficiary designations
Certain accounts such as life insurance, retirement accounts, checking accounts, etc. also the account holder to name a beneficiary for when the owner passes away. If a beneficiary is named in these types of accounts, then the asset will pass to the beneficiary without the need for probate. However, for SPCs of minor children, they should not name their minor child as a beneficiary. So, what then?
If the intent is to leave that asset to the child, then it would be a mistake to name a trusted adult as a beneficiary instead of the child. Whoever the SPC names as a beneficiary receives that asset without any restrictions. And while the named beneficiary may be trustworthy, there may be future disputes with the child regarding the use of the money and when the money should be turned over to the child.
For instance, if Aunt Sue is the named guardian of the child and the beneficiary of a $300,000 life insurance policy, then Aunt Sue can use the money for whatever she wants. Let’s assume Aunt Sue is trustworthy and saves the money for the child. But she may decide that the $300,000 should be spent on certain purchases necessary because she is looking after another child. Maybe she needs to upgrade her car or buy a larger home. By the time the child reaches 18, maybe only $200,000 is left. Naturally, the child believes that they are entitled to the full $300,000 because the intent of the money was that it be saved for the child. But legally, because Aunt Sue is the named beneficiary of the life insurance, the child isn’t entitled to anything. But regardless of the legal merits of the child’s claim, the feelings of resentment and mistrust may remain.
The solution is to name a trust as a beneficiary. Aunt Sue may be the successor trustee, but there are clear guidelines within the trust specifying when and for what the money can be used. More importantly, it reduces the potential for friction between Aunt Sue and the child.
Consult with an estate planning attorney
This blog post is meant to illustrate some special considerations for SPCs, but it can’t account for all the nuances in this complex factual situation. If you are interested in learning more, please contact the Marsala Law Firm for a Family Wealth Planning Session.