Estate Planning For Millennials

Estate planning is the process of organizing your assets, finances, and personal wishes to ensure they are managed and distributed according to your preferences after your death or if you become incapacitated. While it might sound like something only older generations need to worry about, estate planning is essential for anyone with assets or dependents.

Key elements of an estate plan include:

• A will or trust: Determines how your assets are distributed.
• Powers of attorney: Designates someone to make financial or healthcare decisions if you cannot.
• Beneficiary designations: Specifies who inherits certain accounts like life insurance or retirement plans.
• Advance directives: Outlines your preferences for medical treatment in case of incapacity.

Common Misconceptions About Estate Planning

Many millennials delay estate planning due to misconceptions, such as:

• “I don’t have enough assets to need a plan.” Estate planning isn’t just for the wealthy. It also ensures your wishes are followed and simplifies matters for loved ones.
• “I’m too young for this.” Life is unpredictable, and planning early helps protect you and your family.
• “It’s too complicated.” While comprehensive, estate planning can be simplified with professional guidance or online tools.

Why Millennials Should Care About Estate Planning

Shifting Generational Wealth

Millennials will inherit trillions of dollars in the coming decades as wealth transfers from older generations. An estate plan ensures wealth is preserved, distributed as intended, and protected from legal disputes.

Increased Financial Responsibilities

Many millennials face significant financial responsibilities, including:

• Paying off student loans.
• Managing mortgages and other large debts.
• Supporting children or dependents.

Estate planning allows you to address these obligations and reduce potential burdens on your loved ones.

Planning for the Unexpected

Even young and healthy individuals can face unforeseen circumstances. An estate plan ensures your medical preferences are honored and your financial and personal affairs are handled by someone you trust if you cannot make decisions.

Essential Components of an Estate Plan

Wills and Trusts

Differences Between Wills and Trusts

Benefits of Setting Up a Trust

• Avoiding probate: Saves time and costs for your beneficiaries.
• Managing assets during incapacity: A trust can take effect if you cannot manage your finances.
• Providing for loved ones: Allows for structured distributions to minors or dependents.

Choosing a Beneficiary

Selecting beneficiaries is a crucial step. Consider the following:

• Primary beneficiaries are individuals or organizations that will inherit your assets.
• Contingent beneficiaries: Backup choices if the primary beneficiaries cannot inherit.
• Clear designations: Ensure names and relationships are accurately recorded to prevent disputes.

Powers of Attorney

Types of Powers of Attorney

A power of attorney (POA) is a legal document that allows you to assign someone you trust to make decisions on your behalf. There are several types of POAs, each serving a unique purpose:

• General Power of Attorney: Grant’s broad powers to handle your financial and legal matters. It typically ends if you become incapacitated.
• Durable Power of Attorney: Remains in effect even if you become incapacitated. This is essential for long-term planning.
• Special or Limited Power of Attorney: This type of power of attorney grants authority for specific tasks, like selling a home or managing a single account.
• Healthcare Power of Attorney: Assign someone to make medical decisions if you cannot.

When Millennials Need a Power of Attorney

Millennials may not think they need a POA, but it’s a smart move in many situations:

• Traveling abroad: A POA allows someone to manage your affairs while you’re away.
• Starting a family: Ensure a trusted person can handle decisions for your family in an emergency.
• Illness or injury: Accidents can happen. A POA ensures someone you trust can step in when needed.

Creating a POA now avoids confusion and stress later. It’s like insurance for your decision-making abilities.

Advance Healthcare Directives

Living Wills

A living will outline your medical preferences if you cannot communicate them yourself. It’s your chance to make your wishes clear.

• Why Millennials Should Have One:
  • You can decide what treatments you want (or don’t want) in life-threatening situations.
  • Your loved ones won’t have to guess or make tough decisions for you.

Examples of decisions included in a living will:

• Use of life support machines.
• Preference for resuscitation (DNR orders).
• Organ donation wishes.

Healthcare Proxy Explained

A healthcare proxy, sometimes called a medical POA, is a person you assign to make medical decisions if you’re incapacitated.

• Choosing the Right Person:
  • Pick someone you trust completely.
  • Discuss your medical preferences with them beforehand.
  • Make sure they are willing to take on the responsibility.

A living will and healthcare proxy work together to ensure your medical care aligns with your values and choices.

Beneficiary Designations

Updating Life Insurance Policies and Retirement Accounts

Beneficiary designations override your will if you have life insurance or retirement accounts like a 401(k) or IRA. That’s why it’s critical to keep them updated.

• When to Review Your Beneficiaries:
  • After major life events like marriage, divorce, or having children.
  • If a named beneficiary passes away.
  • Periodically, to ensure everything is still accurate.

Designating Payable-on-Death Accounts

Some financial accounts can be set up with payable-on-death (POD) beneficiaries. This allows the funds to go directly to your chosen person without probate.

Benefits of POD accounts:

• Avoid delays in distributing funds.
• Protect your loved ones from added stress.
• Simplify your estate plan.

Pro tip: Always double-check the spelling of beneficiaries’ names and provide their updated contact information. Mistakes can lead to delays or disputes.

Addressing Common Millennial Concerns

Managing Student Loans and Debt in Estate Planning

Handling Federal vs. Private Student Loans After Death

Student loans can be a big worry for millennials, especially if you have a lot of debt. Here’s how different types of loans are handled after death:

• Federal Student Loans:
• Federal student loans are typically forgiven upon your death. Your estate is not responsible for paying them off. The loan servicer will need proof of death to discharge the debt.
• Private Student Loans:
• Private lenders may require your estate to pay off the remaining balance. However, some private lenders may offer forgiveness if you pass away. It’s essential to check the terms of your loan.

If you have a significant amount of student debt, include instructions in your estate plan on handling it. Clear directives can prevent financial confusion for your loved ones.

Including Debt Provisions in Your Estate Plan

In your estate plan, you can:

• List your debts, including student loans, credit cards, and mortgages.
• Identify how you want your debts handled if they exceed your assets.
• Consider a life insurance policy that could help pay off debts if necessary.

Pro Tip: While estate planning can’t erase your debts, it can provide a roadmap for handling them. Planning helps reduce the financial burden on your family.

Planning for Digital Assets

Identifying Digital Assets (Social Media, Cryptocurrency, Online Accounts)

In today’s digital world, your assets aren’t just physical. You may own digital assets like:

• Social media accounts (Facebook, Instagram, etc.).
• Cryptocurrency (Bitcoin, Ethereum, etc.).
• Online business accounts (e-commerce sites, blogs, etc.).
• Digital photos, music, and documents.

These digital assets can hold sentimental or financial value. It is crucial to plan how to handle them when you are no longer around.

Creating a Digital Asset Plan

Here’s how you can secure your digital life:

• List all your accounts and assets: Make a complete list of your digital assets, including passwords and account information.
• Appoint a digital executor: This person will manage your digital assets after death.
• Decide on access and closure: Choose whether you want your accounts to remain active, be deleted, or have specific information shared.

A digital estate plan can save your loved ones from navigating confusing accounts and ensure your digital footprint is handled according to your wishes.

Incorporating Pets into Your Estate Plan

Establishing Pet Trusts

Pets are often considered family; like any family member, they need care after you’re gone. A pet trust is a legal arrangement that ensures your pets are cared for according to your wishes.

• What’s Included in a Pet Trust:
  • Who will take care of your pet?
  • How much money should be allocated for their care?
  • Instructions for their daily needs, such as food and medical care.
  • A backup caregiver in case the primary person is unavailable.

Assigning a Caretaker

Choose someone who understands your pet’s needs and can provide proper care. Make sure to:

• Discuss your wishes with the chosen caregiver: Ensure they’re on board and willing to take responsibility.
• Provide adequate funding: Consider including a financial provision to cover your pet’s ongoing care, such as food, vet visits, and other expenses.

Setting up a pet trust can provide peace of mind, knowing that your furry friend will be in good hands, even when you’re not there.

Steps to Start Estate Planning

Assessing Your Financial and Personal Situation

Listing Assets and Liabilities

Before creating an estate plan, you must know what you have and owe. Start by making an inventory of your assets and liabilities:

Assets

• Homes, cars, and personal property.
• Bank accounts, retirement funds, and investments.
• Life insurance policies.
• Digital assets, including social media and cryptocurrency accounts.

Liabilities

• Student loans, credit card debt, and mortgages.
• Personal loans or business debts.
• Any unpaid medical bills or taxes.

Having a clear picture of your finances will help you make informed decisions about how to use your assets and who will manage your liabilities.

Identifying Personal Values and Goals

Estate planning isn’t just about dividing your money. It’s about ensuring that your wishes are honored.

• To whom do you want to receive your assets? Consider family, friends, charities, or even pets.
• What personal goals do you have? This might include providing for your children’s education or ensuring that a loved one can stay in your home.
• Do you have healthcare or end-of-life wishes? Think about your preferences for medical care or funeral arrangements.

Identifying your goals early on makes putting the right plan in place easier.

Consulting a Professional

Why You Need an Estate Planning Attorney

Estate planning can be complicated, and laws vary by state. A qualified estate planning attorney can help you:

• Ensure your plan is legally sound.
• Offer advice on the best way to structure your estate (wills, trusts, etc.).
• Make sure your documents are clear and enforceable.

Even though online tools are available, an attorney can provide personalized guidance based on your needs.

Alternatives: Online Estate Planning Tools

If you’re looking for a budget-friendly option, online estate planning tools can help. These services provide templates for creating wills, trusts, and powers of attorney. While they may not offer the same level of personalization as an attorney, they are a good starting point for straightforward estates.

Pros of Online Tools:

• Affordable and accessible.
• Quick and easy to use.
• It can be updated whenever necessary.

Cons of Online Tools:

• Lack of personalized advice.
• May not address complex estate planning needs (e.g., trusts, business succession).
• It can be legally binding but may only cover some state-specific requirements.

Creating and Updating Your Documents

Steps to Drafting a Will

Drafting a will is one of the most critical steps in estate planning. Here’s how to get started:

1. Decide who gets what: Choose beneficiaries for your assets and determine how they will be distributed.
2. Appoint an executor: This person will carry out the terms of your will after you pass.
3. Sign your will: Ensure your will is signed in front of witnesses and, if necessary, notarized.
4. Store your will safely: Keep it securely, like a safe deposit box, and let someone you trust know where to find it.

Regularly Reviewing and Updating Your Plan

Your estate plan is flexible. Life changes, and so should your plan. Here are a few key times to review your documents:

• After major life events: Marriage, divorce, the birth of children, or changes in your financial situation.
• Every 3 to 5 years: Even if nothing significant has changed, reviewing your plan is wise to ensure it’s current.
• When laws change: Estate laws are not static, so ensuring your plan complies with the latest regulations is essential.

Regularly updating your plan ensures that it reflects your current life circumstances and wishes.

Common Mistakes to Avoid in Estate Planning

Failing to Plan for Disability or Incapacity

Not Having a Durable Power of Attorney

Many millennials think estate planning is only about what happens after they pass away. But what if you’re unable to make decisions because of illness or injury?

A Durable Power of Attorney (DPOA) allows someone to make financial and legal decisions if you’re incapacitated. With one, someone might be able to go to court to get the legal authority to manage your affairs. This process can be time-consuming and expensive.

Avoiding the mistake:

• Set up a DPOA while you’re still in good health.
• Discuss your choices with the person you designate to ensure they understand your wishes.

Overlooking Healthcare Directives

Another common mistake is neglecting healthcare directives, such as a living will and healthcare proxy. These documents ensure your healthcare wishes are followed if you cannot communicate.

A healthcare proxy allows someone to make decisions about your medical care. Without one, doctors may have to make tough decisions without knowing what you would want.

Avoiding the mistake:

• Make sure you have a healthcare proxy and a living will in place.
• Discuss your wishes with your chosen healthcare proxy so they can act confidently if the time comes.

Ignoring the Need for Beneficiary Updates

Outdated Beneficiary Designations

Even if you’ve written a will or trust, beneficiary designations in accounts like life insurance or retirement funds still take priority. The wrong person could inherit your assets if you don’t update these.

For example, if you get divorced and forget to change your life insurance beneficiary, your ex-spouse might have the benefit.

Avoiding the mistake:

• Regularly review and update beneficiary designations, especially after significant life changes (e.g., marriage, divorce, birth of children).
• Don’t assume that your will covers these accounts—beneficiary designations override your will.

Not Considering the Tax Implications

Failing to Plan for Estate Taxes

While most millennials may not worry about estate taxes now, they should still consider them, especially if their estate grows over time.

The federal estate tax only applies to estates worth over a certain threshold, which can change over time. Some states also have their own estate or inheritance taxes.

Without proper planning, your loved ones might face unexpected tax burdens, reducing the value of your estate.

Avoiding the mistake:

• Understand the potential tax implications of your estate and talk to an estate planning attorney about ways to reduce or avoid taxes.
• Consider establishing a trust to help minimize estate taxes and ensure more of your assets go to your beneficiaries.

Not Communicating Your Plans

Keeping Estate Plans Secret

One of the most common mistakes is keeping your estate plan a secret. While it’s your choice, keeping the plan hidden can lead to confusion or disputes after passing.

Family members might need to learn who to contact, where to find your will, or how you want things handled. This can lead to delays, frustration, and even legal battles.

Avoiding the mistake:

• Share the details of your estate plan with the key people involved (like your executor and healthcare proxy).
• Let your loved ones know where to find important documents, like your will and power of attorney.
• Be open about your wishes and ensure your family knows your intentions.

Underestimating the Importance of Updating Your Plan

Delaying Estate Planning Until It’s Too Late

Many millennials have plenty of time to create or update their estate plan. But life can change unexpectedly. Illness, accidents, or other unforeseen events can happen at any time.

It can leave your loved ones with a mess to sort out.

Avoiding the mistake:

• Make sure to put off estate planning. Start now, even if it’s just making a basic plan.
• Make a habit of reviewing your plan every few years to ensure it stays current.

Breaking It All Down