“Estate planning” sounds like a stuffy legal term reserved for people with gray hair and loads of money. In reality, every person should make time for this critical step of adulthood. Estate planning, which includes writing a will, can protect loved ones from potentially difficult decisions and expensive legal hassles, and – if you have children – allows you to help shape their future should you become incapacitated or die.
“The moment you turn 18 you are considered an adult by state law,” explains Merrell Bailey, managing partner of Your Caring Law Firm in Maitland, Florida. “If you get injured, your parents no longer have any legal authority to do anything on your behalf.”
Most young adults don’t do any estate planning “until they are married, own a home or have a child,” adds Rob Wrubel, a certified financial planner and senior investment consultant with Cascade Investment Group in Colorado Springs, Colorado. “They think, ‘I’m 18, I’m 25. Nothing is going to happen to me.’”
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Taking the First Step
You are best off meeting with an attorney who specializes in estate planning. If cost is an issue, contact your state bar association or the legal aid office at a local law school to ask about discounted or free legal advice. College students may have access to a lawyer through campus student services, Bailey says. “Better yet,” she adds, “ask your parents to pay for estate planning as a birthday present.”
There are do-it-yourself estate planning tools. However, “a document you see online might be from Michigan and you live in Arizona,” notes Tacoma, Washington-based attorney A. Colby Parks. While estate documents are fairly similar from place to place, state laws and forms vary on specifics.
Before you fill out paperwork, think carefully about whom you trust to name as benefactors or guardians and ask those people if they are willing to take on the potential responsibilities.
Power of Attorney Designations
- Durable Power of Attorney:
In this document, you can name another adult, such as a parent, sibling or spouse, to make financial decisions on your behalf should you become incapacitated or unable to manage your affairs.
“This document lets that person you choose step into your shoes and be you,” Bailey says. “They can sell your car, open credit cards in your name, close your bank account.”
Absent this document, loved ones often face a tough battle to win the right to manage your affairs.
Case in point: A tractor-trailer runs into a 26-year-old man, who suffers brain trauma and no longer can care for himself, explains Scott Cadwell, a certified financial planner and founder of Cadwell Wealth Management Group in Celebration, Florida.
“He had no documents that said, ‘I am an adult. I want my parents to manage my affairs if I become injured or die.”
Cadwell consulted with the man’s parents, who had to petition the courts for guardianship. While the man received a sizable settlement from the accident, his parents must make requests to the court when they want to spend that money on his care.
- Health Care Power of Attorney
This POA allows you to name someone to make medical decisions on your behalf. For instance, if you get injured skiing, this would allow someone you trust to sign consent forms for you to have surgery, Parks says.
A living will, sometimes called an advanced directive or a end-of-life directive, is a statement of your intent about whether you want medical personnel to “pull the plug” or take life-prolonging measures in the event that you cannot communicate your wishes due to injury or terminal illness, and there is “no hope of your recovery” (most often as determined by your doctor and one other doctor).
HIPAA Release Form
Medical professionals can face severe penalties for sharing your personal health information. Even if you state in your living will or health care power of attorney documents that your medical information can be shared with a specific person, play it safe and sign a HIPAA release form as well. This can be presented on the spot to health care personnel.
Guardianship is a court action that gives someone else the right to care for you should you become incapacitated, explains Bailey. “I mostly do these in cases where my client is in a same-sex relationship and the partner does not have legal status by way of a marriage, or with young adults who are estranged from one of their parents.”
In the absence of a pre-need guardianship, a court will seek a guardian based on a hierarchy of relatives, typically starting with your spouse or parents.
Last Will and Testament
If you are single and have no kids, writing up a will can be fairly simple. Wills tend to become more comprehensive and complex as you age, build a family and accumulate wealth. There are several areas to address:
- Division of assets
In your will, you name people or organizations to which you will leave your money and assets. In the absence of a will, a spouse and children are logical heirs, but a court ultimately directs who receives what and when.
As discussed above, there is guardianship for you, should you become incapacitated. In your will, you should address guardianship of your children. Attorneys recommend you designate a guardian besides the other parent (if that applies), in the event that you both die or become incapacitated. A “guardian of the person” will raise a child and make personal and health care decisions for the child, whereas a “guardian of the estate” or “guardian of the property” controls money you leave behind on behalf of the child. In some cases the guardian of person and estate are one and the same.
If you have children, setting up a trust for them allows you to specify how much of your money and assets each child receives and when. The trustee, or person in charge of the trust, could be one of the guardians you named, someone else you trust, or a professional trustee.
Issues get tricky when you have children and the other parent is not involved – or you believe he or she should not be involved – in caring for your children. Absent of any estate planning, or unless the other biological parent has legally surrendered his or her parenting rights, that person may well end up raising your children and managing their financial affairs, Parks says. At minimum, setting up a trust will keep money out of the other parent’s hands.
- Disposition of remains
State whether you would like to be cremated or buried and who you would like to be in charge of your remains. Without direction, grieving relatives and loved ones often struggle with these decisions. Even worse, “some people fight over it,” Bailey says. “If you have a young adult whose parents are divorced, which parent is in charge of the remains?”
This is one of the easiest but most overlooked ways of making sure your money and assets go where you’d like, Wrubel says.
Life insurance plans, retirement plans, annuities and other investment accounts have beneficiary designations. This allows you to name the person(s) who will receive those assets upon your death.
“Most people don’t list a beneficiary on a 401(k) or they don’t update it,” Wrubel says. “What we see in workplace 401(k)s is that the beneficiary designation is optional.”
You can go one step further by filling out a transfer on death form for your accounts. Say you are married and your spouse is your beneficiary. A TOD document allows you to direct where your money goes if you both die at the same time, avoiding probate court (where the distribution of your assets is administered).
Also, some experts advise parents to name a testamentary trustee in addition to beneficiaries, with life insurance policies for example, so that if both parents die, the policy benefit goes into the child’s trust.
Online and Social Media Presence
Fill out a spreadsheet that lists your account logins and passwords for any account ranging from checking and credit card accounts to Twitter and Facebook. Then give a copy to a trusted relative or friend. (Do not put this information in your will, which is a public document). It is incredibly difficult for relatives to access and shut down digital accounts without this information.
The same advice applies if you run your own business, in which case you are better off registering accounts under your business name rather than your own.
Update Your Plan
Keep an original set of documents in a safe place at home and let loved ones named in the documents know where they are. Remember to update your estate documents when you experience a major life change, such as marriage, divorce, birth of a child or the death or incapacity of a person named in your documents.