How Should a Stay-at-Home Mom Protect Herself Financially?
Q: Dear Ms. Meyers,
I am in a new relationship in which I am a stay-at home-mom, and my partner financially supports my daughter and me. What can I do to protect myself and be able to continue to function financially should anything happen to my partner? For instance, what type of bank accounts should we set up, etc.? We live in a very conservative state that is hostile to gay and lesbian people.
Sincerely,
Carla
A: Dear Carla,
Here are some initial steps to consider taking to protect yourself financially in the event something should happen to your partner:
First, you can purchase term-life insurance policies on each other and designate each other as the beneficiaries. This is a quick and simple step since term-life policies are relatively inexpensive. To determine the amount of the policy you will need, think about your cost of living, the cost of the policy and any estate tax implications (that is, the cost of any taxes that might be levied against your partner's assets upon her death).
Another very important step is to make sure that your partner names you as the primary beneficiary on her assets. For example, she could name you as her beneficiary on any 401(k)/IRAs and life insurance that her employer may provide. While even a will could potentially be challenged, a beneficiary designation on such assets would typically be honored in the event of your partner's death. Similarly, your partner could name you as the designated beneficiary on any investment and bank accounts so that the accounts also would go to you upon her death.
Something else to be considered is a durable power of attorney, which allows you to designate someone else to legally act for you should you become incapacitated and unable to manage your own affairs. Of course, the person being designated durable power of attorney must be someone who can be fully trusted to properly execute your wishes since this would give them the right to pay your bills, authorize deductions from your savings account, manage your investments and so on. Typically, this trusted individual is a mate or longtime partner. In your situation, you and your partner might consider establishing each other as a durable power of attorney to allow both of you the ability to act as legal agent for the other in case one of you becomes incapacitated.
One of the best ways to be protected when you co-own a major asset, such as a house, is to register the holding through something called "joint tenants with rights of survivorship." This gives both of you an undivided interest in the property. More specifically, in the event of your partner's death, this would allow you to automatically inherit the property.
Finally, if your partner has access to long-term disability ("LTD") insurance through her employer, make sure that she is taking full advantage of it. You will typically have to contribute something to the expense of an LTD insurance policy, but I can assure you that it is money well spent. After all, contracting an illness or having an accident that causes a disability, such as blindness or the loss of mobility, is more common than death. And you must consider: How long would you be able to live on the assets you have saved if that were to occur? For most people, the answer is only about one year, even when including their retirement assets. But LTD insurance would typically protect up to 60 percent of your partner's salary up to age 65.
Sincerely,
Shelly Meyers
Meyers is chairwoman and chief executive officer of Meyers Capital Management, L.L.C., in association with Kathleen Bresnan, financial advisor for American Express.
Dec. 12, 2000