An estate plan for every stage of life
There are many common misconceptions surrounding the topic of estate planning. For example, many people believe that estate planning just means having a will. Others think that estate planning is only a concern for retirees or those over age 55. Unfortunately, these misunderstandings can be incredibly harmful to your loved ones – no matter what season of life you’re in.
The truth is, individuals at every stage of life can benefit from having an estate plan. Admittedly, the strategy for someone who is newly graduated from college will look different than a plan that’s been created for a retiree.
The key is to understand what elements are included in an estate plan, and what you need based on your current age and your unique financial needs and goals. Let’s explore what an estate plan could look like, and what potential pitfalls to watch out for.
During and Immediately After College
Whether you’re still in college, or you’ve recently graduated, you need a few basic documents:
- Durable Power of Attorney (POA) for Healthcare
- Durable Power of Attorney (POA) for Finances
- Will or updated beneficiaries on all accounts
Having your POAs in place should be your number one priority right now. These documents give a parent or loved one the right to make medical decisions on your behalf and to take control of managing your finances if you’re medically unable to do so.
A will is also important to have during this stage if you have any assets. However, having beneficiaries updated on all of your retirement accounts is usually a good first step. You can also request your checking and savings accounts to be titled to a Transfer On Death (TOD) account, which will allow you to list who you would like your accounts to transfer to in the event of a death.
Getting Married or Committing to a Serious Partnership
When you get married or are in a committed partnership , the level of complexity in your estate plan increases. Most want to be able to take care of their partner in the event of incapacitation or death, and having a plan in place helps you achieve that. When you’re in a serious partnership, you should consider the following:
- Durable Power of Attorney for Healthcare
- Durable Power of Attorney for Finances
- Will
- Updated beneficiaries on all accounts
- Life insurance
- Advance Directive
We’re building on what you needed as a new graduate or young professional. When you have a partner, you want to have the basics in place such as a will or Power of Attorney. However, you also want to go above and beyond to you want to be able to make sure your loved ones are taken care of financially in the event of a death. You also want to give them the power they need to make decisions in the event you cannot advocate for yourself due to incapacitation.
For example, taking out a life insurance policy through a private agency or your employer can help to cover your salary if you passed away so that your partner wouldn’t have to worry about immediately adjusting their lifestyle and cost of living.
You can also create an Advance Directive, sometimes referred to as a Living Will, for your spouse or partner (assuming they’re your Healthcare Durable Power of Attorney). This directive will outline how you want your medical care to be handled if you’re unable to advocate for yourself.
Starting a Family
Many families kick their estate planning into gear when they’re expecting their first bundle of joy. If you haven’t set up a plan for your family, now is the time! With a little one on the way, you want to make sure you have all of the pieces in place to protect both your spouse or partner and your children. Here’s what you should consider:
- Durable Power of Attorney for Healthcare
- Durable Power of Attorney for Finances
- Will
- Updated beneficiaries on all accounts
- (Increased) Life insurance
- Advance Directive
- Guardian
Again, we’re building on what you needed when it was just you and your partner during this new season of life. You’ll need your baseline estate planning documents in order, and then you’ll need to think about how you want to care for your child should something happen to both you and your spouse/partner.
Most of the time this looks like increasing your life insurance to help cover expenses like their future college tuition, weddings, and care up until they’re 18. You’ll also want to designate a guardian for your children.
A guardian helps to manage your children’s finances until they’re 18 (or until you deem them financially responsible to manage their inheritance).They also take care of them, and help to raise them after you and your spouse or partner pass away. Your children’s guardian will have several key responsibilities, including:
- Location and residence. Your child’s guardian will be in charge of where they live, and whether or not they relocate.
- Education and guidance. They’ll help choose school districts for your child, and be in charge of making sure they get the educational support they need. As your children near college, they’ll also be there to give them advice and guidance.
- Medical. All basic medical, dental, and mental health treatments are the responsibility of your child’s guardian.
This person is a critical part of your estate plan, because you want to ensure that the person you select truly has the best interest of your kids at heart. Raising someone else’s children is a big responsibility, and you should take some time with this decision.
Sandwich Generation and Legacy Building
If your children are older, or you’re caring for aging parents, you fall squarely in the “sandwich generation.” In other words, you’re between caring for your parents and your young adult children. This can be a tough spot to be in, and you want to make sure your estate adequately supports all of the loved ones you’re responsible for during this stage of life.
One way you can help to build an estate plan that supports all of your loved ones is to set up an estate that sidesteps probate.
What’s probate?
Probate is a long and often expensive legal process where your estate is evaluated by the court. This happens even if you have a will in place. The court will evaluate your will along with the rest of your debts and assets, and your estate is distributed accordingly. Sometimes, this process can take up to 6-9 months.
If you have kids or adult dependents, the last thing you want is for the funds that will support them to be tied up in court. Trusts can help you sidestep probate because they are private, and not considered part of your estate since they belong to the trust’s beneficiary. Trusts can also help you to build a legacy by naming an organization or foundation as a beneficiary, alongside your loved ones.
You will want to start thinking about the kind of legacy you want to leave, and how your estate plan can support that. For example, you might be interested in donating a portion of your estate plan to your home church or setting up a scholarship foundation at your alma mater. As you continue to think about your legacy and the impact you want to make on the world, you can update your will accordingly.
How Does Estate Planning Fit In With Your Finances?
Estate planning is complicated even further when you take cultural barriers into account. Death and money are often two of the most sensitive topics to tackle with loved ones. Depending on your family dynamic, you may never discuss estate planning or finances in general.
If this sounds like your experience, it’s even more important that you focus on creating an estate plan that takes care of your loved ones and streamlines the process for them. It’s also important for you to start conversations about estate planning with your family when you can.
As you put together your estate plan, it’s important to think about both protecting your loved ones and leaving a legacy. By determining how you want your loved ones to be cared for after you pass away, and getting organized while you’re still happy and healthy, you’re setting your family up for success. They’ll be able to carry on your family legacy without the stress of sorting through your estate, or moving through a painful probate process.
This article was written by Rianka Dorsainvil from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.
