If you’re a millennial, estate planning probably isn’t something that you spend too much time thinking about. Either you don’t know what estate planning is, or think it’s just for old wealthy people. However, I’m here to tell you that estate planning is an important component of your financial plan, no matter your age or net worth. In this video, I’m going to explain what estate planning is, why it is important for you, and how to put it into place.
What is estate planning?
First of all, what IS estate planning? Basically, an estate plan is set of instructions for what happens to you, your stuff, and your kids if you were to pass away or become incapacitated.
Why is estate planning important to me?
Probably the more obvious part of an estate plan is planning for what happens to your stuff when you die. This is where you specify who gets your money, house, and any other property when you die. It can be your spouse, children, charity, or anyone that you choose. Even if you don’t have a ton of money or property, this is still an important part of your estate plan. You want your money and your belongings to go to the right people.
Another important part of an estate plan is planning for disability. This refers to what happens if you were to become sick or injured to the point where you are unable to speak or act on your own behalf. In this case, you need someone who will step in and help you with your finances and with your medical care. If you are in the hospital, your bills still need to be paid, you probably need access to money for medical treatment, and you need someone to make decisions about the care you’re receiving. It doesn’t have to be the same person. The person who handles your money can be different from the person that manages your medical treatment, or it can be the same. If you’re married, your spouse may be the obvious choice for that role, but if you’re not married, it might not be clear who that person would be. A parent or long-term partner may be surprised that they aren’t authorized to act on your behalf. You want to have someone appointed for that role before there’s a problem.
Another important part of an estate plan is planning for what happens to your underage kids if something happens to you. You need to designate who will take care of your kids, and who would manage the money until your children are old enough to manage it themselves. You can appoint the same person for these two roles, or 2 different people if you wish. You also want to consider how you want your kids to receive their inheritance. If it’s a substantial amount, you might not want your kids inheriting everything on their 18th bday. I’ve seen this situation several times in my career. I’ve seen parents pass away and leave everything to their young adult kids, with no restrictions. So many times, I’ve seen the inheritance gone within a year, which probably wasn’t the intention of the parents. To prevent this, you can set up a schedule for them to receive chunks of money in phases, or you can even set some requirements for your kids to get the money, like they have to graduate college or have a full-time job. Maybe you don’t care what happens to your money when you die, but maybe you want to make sure your kids are set up for success.
In my own situation, I have two young kids. If something were to happen to my husband and I, we have a guardian designated to take care of them. We’ve also set up some parameters around how they will receive the money, so that they don’t get access to all of it on their 18th birthday. We have it set up so that the kids get a chunk of money when they turn 18, another chunk when they turn 30, and so on. Even if you don’t have young kids, you may have family members for whom you would be concerned if they received a lump sum. For example, family members with mental illness or addiction issues, or even family members who are just not responsible with money.
How do I create an estate plan?
If you decide that you do need an estate plan (which you probably do), now you need to know how to put it into place. One thing that you can do right away is check the beneficiaries you have listed on your retirement accounts and life insurance policies. If you have a 401k, 457 or any other retirement plan through work, you’ll need to log into your employer site and see who you have listed as your beneficiary. If you have an IRA, a Roth, or any other retirement account outside of work, you’ll just need to check with whatever financial institution has your account and see who you have on file as beneficiary. Same goes for any life insurance policies you have. You want to make sure that it’s the correct person. If you’re recently married, you’ll want to change it to your spouse. If you’re recently divorced, you’ll probably want to make sure you remove your spouse, or if your beneficiary passes, you’ll want to make sure you change it. It’s very easy to update. You’ll just need to sign a form.
For anything else, you’re going to need some more official legal documents. A standard estate plan includes a will and probably a trust. I won’t go into why you might need a trust because that’s a whole video in itself, but just know that you probably will need one at some point. You’ll need a Power of Attorney for financial and a Power of Attorney for medical decisions, and then if you have kids you’ll need guardianship information. There are a handful of other documents you might need. To get these estate planning documents, you can hire an estate planning attorney to draw them up for you and tailor them to your unique situation. Be warned- attorneys are not cheap. Their rates are going to depend on where you live and the complexity of your situation. I live in California, where an estate plan can cost a couple thousand dollars. Another option is to use an online company like Legal Zoom, or Trust & Will (a new company geared towards millennials), which use some standard templates and are significantly cheaper. If you have a fairly simple situation, you might be fine using an online option. If you situation is even remotely complex, however (you have kids from different marriages, family members with special needs, etc.), you may want to consider having an attorney help you so that you make sure it is done correctly. In my own situation, I have little kids and I’m a little particular with my wishes, so it’s really important to me that it’s done correctly. That’s why I hired an estate planning attorney, but you certainly don’t have to.
Now that you know what estate planning is and why it might be important, give some thought to your own situation and what your wishes are if you were to pass away or become incapacitated. Make sure that you have taken the steps so that your wishes are honored.