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The term “head of household” refers to a tax filing status that one can obtain by being unmarried while supporting a dependent.  The purpose of someone to qualify as a head of household is to recognize the financial burden of having a dependent by granting a beneficial tax treatment.  

In this article, we will further explain what a head of household is and examine the criteria that can qualify someone as a head of household.  We will also explore how this may be relevant to the field of estate planning. An experienced estate planning attorney from Rosenblum can help explain the estate planning implications of head-of-household status. Estate planning is especially important for heads of household whose dependents are elderly parents. We will discuss what exactly makes this so important, and what actions can be taken to ensure dependents are properly accounted for.

What is a Head of Household?

Head of household is a tax filing status potentially given to an unmarried individual who supports a qualifying dependent.  The most common examples of qualifying dependents are children and elderly parents who can no longer support themselves.  In addition to being unmarried, the head of household must bear the burden of more than one-half of the dependent’s support and living expenses.  

A head of household enjoys lower tax rates and higher standard deductions than other single filers.  The higher standard deduction could allow a head of household to have a higher amount of non-taxable income, while the lower tax rate allows the head of household to keep more of their taxable income. 

How Can One Qualify as a Head of Household?

In order to be considered a head of household, a taxpayer must be unmarried or separated, and must provide more than one-half of the support for a qualifying dependent.  Those who are married or who do not support a qualifying dependent may not be considered a head of household.  

Being responsible for more than half the living costs of a parent who does not live with a taxpayer can still allow them to be a head of household, if the parent is dependent on a taxpayer.  Normally, for one to obtain head of household status, that taxpayer must house the dependent for whom they care. When the dependent is a taxpayer’s parent, it is not necessary that the parent actually live with the taxpayer. For example, say that a parent still lives in the same home they have lived in for their entire adult life. If the taxpayer nevertheless pays for more than half of the parent’s support and housing costs, the parent could still be considered a dependent from which the taxpayer can receive head of household status.

Perhaps the logic here is to encourage comfortability for the dependent while also recognizing the commitment of the taxpayer. While it makes sense to require other qualified dependents, namely children,  to live with the taxpayer for at least half of a year, with elderly parents, it may make sense to allow them to continue living comfortably in their own home. Just because the parent is living in their own home, does not mean that they are not reliant on the taxpayer for a vast majority of their support expenses. This policy seems to recognize that and reflects that recognition by allowing taxpayers to claim parents as dependents even though the parent may not physically live with the taxpayer.

What is a Qualifying Dependent?

Many of the criteria for being a head of household involve caring for a qualifying dependent.  There are several criteria when determining whether someone is a qualifying dependent.  Different types of people who may be considered a qualifying dependent include, but are not limited to:

• Biological, adopted, or stepchild
• Parent or stepparent 
• Niece, nephew, aunt, or uncle
• In-law

Qualifying children also have their own set of criteria to meet.  In order to be a qualifying child who is sufficiently dependent on a head of household, the child must:

• Be a biological, adopted, step, or a child of a descendant 
• Have lived in the head of household’s home for more than six months in a tax year
• Be younger than the taxpayer
• Be under 19 at the end of the tax year, or under 24 if they are a student, and
• Have not paid more than half of their living expenses for the relevant year

How Does Being a Head of Household Impact Estate Planning?

If a taxpayer is a head of household and someone depends on them for support, they may have similar estate planning priorities to those of a single parent.  Perhaps they worry about what may happen to their dependent(s) in the event something happens to them.  To ensure their dependent(s) will be taken care of in their absence, a taxpayer may want to consider a:

• Last will and testament
• Revocable living trust
• Guardianship
• Life insurance
• Durable Powers of Attorney

Having someone depend on you is an important, albeit heavy, responsibility for one to bear. Dependents also emphasize the need for a proper estate plan to ensure that those who are reliant now, are properly taken care of in the event that their source of support dies. There are instances where one’s dependents may not be in line to inherit through the laws of intestacy. This would be the case for most dependent parents. In many states, spouses and children will inherit before a parent would. While state laws will help to explain how an intestate estate would be distributed, it is best to create a comprehensive estate plan that can offer peace of mind for the creator, knowing that those who depend on them will be properly cared for if something were to happen.

Last Will and Testament

A last will and testament is a document that can leave a distribution plan for an individual’s assets upon their passing. In a will, one can lay forth who they want to inherit from their estate. This is particularly important for heads of household, and as said earlier, especially for those whose dependents are their parents, because there is no guarantee that one’s dependent would receive from their estate if they were to die without a will.

In New Jersey, parents are lower down the intestacy list. For example, children and/or spouses would be capable of soaking up one’s entire estate, leaving the dependent parent with nothing. Creating a will can help carve out a portion of one’s estate to be left with their dependent parent, helping to ensure the parent is taken care of in the event their lifeline were to die and be unable to continue their support.

Revocable Living Trust

A revocable living trust is similar to a will in that it can direct one’s assets after they pass away. There are, however, a few additional benefits of a living trust that could make it even more appealing for a head of household. These include: 1) the ability to bypass probate; and 2) the control that the head of household can exert over the inheritances.

When a will goes through probate, it can take months for the estate to be sorted out. Probate is essentially the court’s way of validating a will and authorizing an executor to act. With a trust, most assets will be able to bypass probate, thus making those assets available to heirs much more efficiently. If efficiency and expanded control over assets are priorities, then perhaps a revocable living trust would be a more effective cornerstone of the estate plan.

Durable Powers of Attorney

A durable power of attorney allows an agent (the person named to care for one’s financial affairs) to manage one’s finances for them. The “durable” portion of the name means that the powers remain in effect even if the person who executed the document becomes incapacitated. 

This document is chiefly important for heads of household because it would enable a trusted individual to continue to manage the head of household’s finances in the event they become unable to. The agent named can continue to make support payments to dependents, they can gift money to those who may need it, and, overall, they can continue to manage one’s finances exactly how that person would have if they were presently able to do it themselves. 

It may be easy to overlook the possibility of someone losing their ability to manage their financial affairs. It is critically important, however, to prepare for this occurrence, especially for those who have people depending on them. Do not let your dependents and loved ones get shut out from the support that they need to survive. It is best to create a comprehensive estate plan that covers all of the bases, not just asset distribution upon death.

Life Insurance

While life insurance is not included in an estate plan the same way a will or a power of attorney document may be, it is a critical step to creating a comprehensive plan.  

With life insurance, a head of household can help to bolster the bottom line of their estate and get more money into the hands of their heirs.  They often can name a beneficiary on the policy so the proceeds will not have to pass through probate.  They can also name their living trust as the beneficiary, helping them to impose those conditions that were addressed earlier.  

How Can Rosenblum Law Help?

Rosenblum Law has an experienced estate planning team that can help you prepare for whatever situations are most concerning to you. Whether it be making sure the people who need you most are in a position to inherit from you, or by delegating powers to a trusted individual who can continue to support your loved ones in the event you become unable to, the estate planning attorneys at Rosenblum Law can help you find the estate planning solution that fits your needs. 

Our estate planning packages include everything that you will need to properly care for your dependents. From wills, to trusts, to powers of attorney, our experience in this field will translate to a thorough estate plan that can precisely address your biggest priorities. To further discuss your estate planning needs and to explore all options, give Rosenblum Law a call at 888-235-9021.