In your 20s and 30s, you’re focused on building your life. Your thoughts center around personal goals, repaying your student loans, starting a family and maybe even traveling and seeing more of the world. But what about estate planning?
If you think you’re too young — think again. Incapacity can occur at any age. Most people prefer to have control over what happens to their belongings when the unthinkable happens. But when there’s no plan in place, the state decides what happens to your assets.
Estate planning is more than just signing a will. Here are seven estate planning essentials every adult needs.
Factor Student Loans Factor Your Estate Plan
Student loans are a debt burden. Federal student loans discharge at death, so no further payments will be required — that includes federal Parent PLUS Loans your parent may have taken out to cover your university bill.
For private student loans, the decision is up to the lender. Your balance is likely to be forgiven if you took out the private student loan on your own. But what if a parent or someone else co-signed the private loan? They could be on the hook to repay the entire loan unless it’s a new loan issued after November 20, 2018, thanks to a provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act.
And if you took out loans after getting married, your spouse could be stuck with them if you lived in a community property state or they co-signed on your loan.
What to do
Consider buying insurance in the amount necessary to account for your debts, including your mortgage and car payments. A term life insurance policy can cover any outstanding loans and help protect your parents and spouse.
Time for a Health Care Directive and Power of Attorney
If a health emergency makes you unable to communicate your treatment wishes, your family shoulders the burden of making those decisions for you.
A health care directive (aka, living will) tells your family and friends what lifesaving medical treatments you want and, more importantly, don’t want. Doctors and nurses are legally bound to abide by your directive – unless they have an objection of conscience or consider your wishes medically inappropriate – regardless of what your family wants.
Here’s one example of the importance of this document: In 1990, 26-year-old Terri Schiavo suffered a cardiac emergency that left her in a vegetative state and triggered a 15-year conflict over her care. Her husband insisted on allowing natural death, but her parents argued they must keep her alive using extraordinary measures. A simple health care directive could have prevented the legal battle to control her destiny.
Likewise, a health care power of attorney (POA) document lets you name someone you trust as your “agent” or “attorney in fact,” giving them the power to make medical decisions on your behalf. For situations where an advance directive does not give enough guidance, your agent can determine those decisions, such as whether to perform a specific procedure. Once you can communicate, a power of attorney rescinds, and you have decision rights again.
What to do
You can find many templates online to set up a POA. However, keep in mind that, while all states accept POAs, each state has different rules and requirements. Consider using an attorney to draw up the document to ensure it meets requirements in your state.
Last Will & Testament: Just Do It
If you died in an accident today, what would happen to all your stuff? Who would take it? If you don’t have a will, a judge will make that decision based on your state’s laws. Your family won’t have any say in the matter. This legal situation is called intestacy, meaning you died without a will.
When you create a will, you designate what will happen to your property (including your digital assets). You will also name an executor who is responsible for executing your wishes — like giving your car to a sibling or sending an heirloom back to your parents.
A will doesn't have to be detailed, but it makes sure that your family knows your wishes. However, you may not need to include financial accounts, such as life insurance, in the will because they either transfer on death or will be distributed to the beneficiaries you have named.
What to do
First, determine what property you want to include in your will and decide who will inherit it. You’ll also need to name an executor to handle your estate. A few states provide a standard will form that you can fill out. However, they’re often too simple for most people. It’s best to find an attorney who specializes in estate planning to set up your last will and testament.
Review Your Retirement Accounts and Beneficiaries
Young people may not have accumulated as many assets as older people, but they do often have retirement accounts, including 401(k)s and IRAs, that must go somewhere when the owner dies. The funds in these accounts pass to the beneficiary you named on the accounts.
What to do
It's essential to update your legal documents and financial accounts and the beneficiaries you list on them whenever you make a significant life change, such as getting married, divorced or having a child.
Don’t Forget Your Digital Assets
Important documents, family photos, affiliate marketing and passwords to social media sites may only exist on someone’s computer or phone. How will your loved ones access those accounts to preserve them? In addition, if you own cryptocurrency, unless you properly plan for transferring it, it could be lost forever. A digital executor can access online accounts to close them and save digital documents and media.
What to do
The easiest solution is to list everything you access online and give your digital executor access to your login credentials. But that isn’t the safest (or most legal) option. When meeting with an attorney to set up your will, work with them to add the right language to cover your digital assets. Be specific about who can access what accounts and what you want done with each account.
A Critical Decision: Child Guardianship
If you have children, you need a guardianship clause in your will that designates a legal guardian for them in case you die before they reach the age of 18.
When parents die without designating a guardian or alternate guardian for their children, it falls to a judge to decide who becomes responsible for those kids. Unfortunately, family members often engage in ugly legal battles over children who have no say in their own fates.
What to do
Addressing guardianship ahead of time saves everyone, particularly the children, a lot of pain and confusion. You can appoint different guardians for different children if it seems appropriate. Experts recommend naming only one person as the guardian, rather than a couple, because marriages can dissolve and leave children's fate again at the hands of a judge.
Parents of special needs children should appoint a guardian and determine if establishing a special needs trust to support that child makes sense.
Take Care of Your Pets, Too
Most pet owners consider their pets to be family, but there aren't many laws about what to do with a pet when someone dies. If you die without a will, unless a kind neighbor, friend or relative steps up to care for your pet, it’s likely it would end up in an animal shelter.
What to do
Adding a pet guardianship clause to your will can ensure your pet stays with a trusted friend or family member who has agreed to assume its care for the rest of their life. You can also name an alternate if the proposed guardian is unable or unwilling to take the pet when the time comes. Setting up a pet trust lets you earmark money to cover their food, toys, treats and veterinary care. A pet trust also creates another level of accountability and peace of mind.
Don't wait for a tragedy to strike. The best strategy is to get your estate plan in place before you need it. If you haven't already taken the steps necessary to secure your wishes, do it now. With a little effort, you can help make sure things go right when something goes wrong.
Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠ and a Retirement Income Certified Professional. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.
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