People who depend on you

The word means four different things

People use dependent as though it were a single status somebody either has or does not. It is not. It is four separate definitions written by four bodies for four purposes, and qualifying under one says nothing about the others.

• For tax, a dependent is a person meeting a defined test involving relationship, residence, income and how much of their support you pay. A parent is the one relative who can be claimed without living with you, provided their income is under the threshold and you pay more than half of their support.
• For a benefit program, dependence is defined by that program. Social Security's survivors benefits turn on relationship and age rather than on how much somebody relied on the person who died, and a parent qualifies only where they were dependent on the deceased for at least half their support.
• For an insurance policy or an employer plan, dependent means whatever the contract or the plan document says it means, which is why a partner covered on your health plan may not be a beneficiary of anything else you hold.
• For inheritance, there is no dependent category at all. State law distributes to relatives in a statutory order. Someone who lived on your income for twenty years is not on that list unless a document you signed puts them there.

The Social Security list is worth reading rather than assuming, because it is more generous in some directions than its name implies and narrower in others. It reaches a surviving spouse of any age who is caring for the deceased's child under sixteen, a child who is unmarried and under eighteen, a child of any age whose disability began before twenty-two, and a stepchild, grandchild or adopted child in defined circumstances. It reaches an unmarried partner in none.^{Source 1}

The mistake that follows from collapsing the four is specific and costly: a person concludes that because somebody is listed as their dependent somewhere, that person is provided for. Being claimed on a tax return creates no right to inherit anything, and being covered on a health plan creates no right to a death benefit.

Two questions, asked about each person

Write down each person who would be in difficulty if you died tomorrow or could not act next month. For each one, there are only two questions, and they fail independently. A plan can be perfect on money and empty on authority, and the second failure is the one that arrives first.

Will money reach them, and how fast

• Is there enough, if your income stops? For most households the honest answer to that is a life insurance policy rather than an estate.
• Is it pointed at them? Money reaches a person through the instruction on the asset, not through your intentions. A policy or an account with their name on the beneficiary form pays them directly and usually in weeks.
• Would they have to wait for a court? Anything left to the will has to go through whatever probate their state requires, and a dependent living on your income does not have months.
• Can they receive it at all? A minor cannot take money directly, and an adult receiving means-tested benefits can lose those benefits the day an ordinary inheritance arrives.

Will somebody have authority

• For a minor child, who becomes responsible for them, and who holds their money. Those are two separate offices and most plans fill only the first.
• For an adult who cannot manage their own affairs, who is authorized to act, and under what document.
• For yourself, who can act on your finances and speak to your doctors if you are alive but cannot decide. A dependent's whole support can stop for months because nobody could get at your accounts.
• For everybody, who knows what exists. Authority without information is not usable, and the fastest failure in this whole subject is a family that cannot find the accounts.

The order matters. The authority documents are the ones that matter while you are alive, and they are cheaper and faster to put in place than anything else here. A person who does one thing this month should do those.

When the default rules do not see your family

Every state has a statutory order for who inherits when there is no will, and every one of them is built around marriage, blood and adoption. It is not hostile to other arrangements; it simply does not know about them. Where your household does not match that shape, the default answer is wrong in the same direction every time, and only a document you sign fixes it.

• A partner you are not married to inherits nothing under intestacy, however long the relationship and whatever the household believed. This is the single clearest case where a will changes the outcome outright.
• A stepchild you raised but never adopted is generally not a descendant for inheritance, however they were brought up. If you want them provided for, they have to be named.
• A person you support who is not related to you, a friend, a caregiver, a chosen family member, receives nothing by default.
• A relative you are estranged from may still inherit, which is the same failure running in the other direction.
• A separated but not divorced spouse usually still inherits, which surprises families who consider the relationship finished.

Where an unmarried partner lives in a home that is in your name alone, this is not a distant question. The house may pass to people with no obligation to let them stay, and how the title is held decides most of it. It is worth resolving now rather than leaving them to discover it.

There is one useful piece of good news in this. Because most of what a household holds is controlled by beneficiary forms and by how title is held rather than by the will, a great deal of it can be pointed at the right person today, in an afternoon, without paying anyone. Naming your partner on the accounts and policies that allow it does more, faster, than anything else on this page.

A child who is still a minor

A child's plan has three parts and they are usually filled in the wrong order. Families think first about who raises the child, which is right, then stop, because the other two are invisible until they fail.

1. Who raises them. This is a nomination made in a will, and there is no other document that does it.
2. Who holds their money, and until when. A minor cannot receive an inheritance or a death benefit directly, so if there is money and no arrangement for it a court appoints somebody to hold it, and in most places the child receives whatever is left outright at the age of majority.
3. Who handles the first week, before anybody has been to court. That is a practical arrangement rather than a legal one, and it is the part with the shortest fuse.

Naming a minor child directly on a life insurance policy or a retirement account is a frequent way the second problem happens by accident. The insurer will not pay a child, so the money waits for a court-appointed guardian of the estate, and the arrangement the parent thought they had made is not the arrangement that exists.

An adult who depends on you

An adult child with a disability, a parent living on your support, a sibling who cannot manage money, a partner whose income is yours. The money question is the same one, and one additional question runs alongside it: whether receiving money would cost them something.

Where the person receives means-tested benefits such as Supplemental Security Income or Medicaid, an ordinary gift can end their eligibility on the day it arrives, and the two home-made solutions both fail. Leaving their share to a sibling to look after makes it the sibling's money, exposed to the sibling's divorce, creditors and death, with no enforceable obligation to spend any of it on the person it was meant for. Leaving it to them outright is the other trap. This is the narrow case in which Sahvelo would tell almost anybody to buy an hour of professional advice, and the reason is not complexity: it is that the order in which the money moves changes the outcome permanently, and fixing it afterwards costs more than doing it now.

Where the person is not on benefits, the questions are more ordinary and still worth asking deliberately. Can they manage a lump sum, or does the money need to arrive over time? If it needs to arrive over time, somebody has to hold it, and that is a job with a name and a document behind it. And does anybody have authority to act for them if they cannot act for themselves, which is a question about their documents rather than yours.

Support that runs through you is a single point of failure whether or not anybody has called it that. The useful test is not what happens when you die, which people do think about. It is what happens if you are alive and cannot act for three months.

What to put in place, in order

In rough order of what fails first and what costs least to fix.

1. Read the beneficiary forms on everything that has one, and name the people who actually depend on you, with a contingent beneficiary on each. This is free, it takes an afternoon and it moves more money than anything else here.
2. Put a financial power of attorney and a health care directive in place, so support does not stop while you are alive but unable to act.
3. Make a will, which is the only document that nominates a guardian for a child and the only instruction covering everything with no form attached.
4. Work out whether the money is enough if your income stops, which for most households is an insurance question rather than an estate question.
5. Where somebody cannot receive money outright, whether because they are a minor or because it would cost them benefits, arrange who holds it and until when.
6. Write down what exists and where, because authority nobody can act on is not authority.

One thing on this list is unlike the others. Everything except the beneficiary forms produces a document, and a document is easy to believe in. The forms produce nothing to look at, and they are where most of the money is.