Who needs an estate plan? Young adults often think of estate plans as being for people who are older and people with significant wealth. Younger adults, by definition, are not older; and they are typically early in their careers and may not have a lot of money. But it would be a mistake to conclude that young adults don’t need an estate plan. While many young adults don’t have a high net worth, that doesn’t mean they don’t have anything of value to protect. In fact, estate planning for young adults is more important now than ever.
If the last few years have taught us anything, it is that life is uncertain and can turn on a dime. And it is not only the risk of a sudden, premature death that makes estate planning important. A sudden illness, accident, or injury can render a young person incapacitated. A comprehensive estate plan allows young adults to plan not only for the possibility of death, but for the greater possibility of temporary or permanent incapacity.
When Should You Start Estate Planning?
The truth is that you should start estate planning as soon as you are a legal adult, which in Michigan is when you turn 18. Estate planning in your 20s or even late teens doesn’t have to be costly. The simpler your estate, the simpler your estate plan can be. For most young people, a simple will, financial and medical powers of attorney, and some other advance directives will suffice. These are the building blocks of estate planning for young adults.
Last Will and Testament
Most people are familiar with the concept of a last will and testament. This document distributes your assets after your death to the people you have designated, names an executor (person you have chosen to administer your estate) and who will act as guardian for your minor children. If you do not have a will, a probate court will distribute your assets to your nearest relatives under state law — your spouse and children if you have any, or your parents or siblings.
Even if state law would give your assets to the people you would want to have them, it is still important to have a will. Having a will simplifies the estate process for your grieving family. And if you want to leave any of your property to a non-relative (or disinherit a relative) you need a will to achieve that.
Durable Financial Power of Attorney
A financial power of attorney is a document that lets you grant someone (your “agent”) authority to handle your financial affairs if you become unable to take care of them yourself. A financial power of attorney for a young person should be “durable,” meaning that the agent’s authority to act survives your incapacity. The power can also be “springing,” meaning that it doesn’t take effect unless and until a certain event (your incapacity) occurs.
You can make the power as broad or as narrow as you wish, but because this document is used to plan for incapacity, you may want to give your agent broad authority to handle your financial affairs. You can terminate the power of attorney or change your agent at any time until you become incapacitated. Of course, you should let your chosen agent know you are appointing them and make sure that they are comfortable serving in that role.
“Advance directive” is an umbrella term that refers to certain documents that describe what kind of medical care you want to receive, and whom you want to make medical decisions for you if you cannot make or express them for yourself. Advance directives in Michigan include Patient Advocate Designation (PAD), which is sometimes also called a medical power of attorney; it designates a patient advocate to make medical decisions on your behalf. “Do Not Resuscitate” (DNR) and living wills, which specify the type of medical care you do and do not want in certain situations are also advance directives.
Your patient advocate should have copies of all of these documents. You may also want to execute a HIPAA release so that your parents or another trusted person can get information about your medical condition in the event of an emergency.
Estate Planning for Young Families
Estate planning is important for all young adults, but it is especially important for adults with young children. In addition to planning for incapacity and distribution of assets on death, young parents need to identify a guardian for their young children if they are no longer available to care for them. A guardian can be identified in a last will and testament, like an executor, and like an executor needs to be formally appointed by the probate court.
Parents of young families may also want to create a living trust for any assets that they leave to their children. With a living trust, the parents can use and control all trust assets during their lifetime and name a successor trustee to manage trust assets after their death. Having a living trust keeps assets out of probate and allows them to be managed and used by the trustee for the benefit of the children.
Since children under the age of eighteen cannot legally own assets, if there is no trust in place, a conservator would need to be appointed to manage the children’s assets. (This could be the same person as the guardian). However, without a trust that dictates otherwise, the children would be entitled to receive their entire inheritance when they reach eighteen.
Getting Started on Your First Estate Plan
Whether you’re embarking on your career, raising young children, or both, it can be hard to make time for estate planning in your 20s. That said, young adults who take the time to make an estate plan rarely regret it. Planning ahead for contingencies is the ultimate in “adulting.” It will give you peace of mind, and confidence that you are ready for whatever lies ahead. As your life evolves with marriage, children, the acquisition of assets, and other changes, it will become even more important to have an estate plan. Having one in place makes it easier to update your estate plan for your changing needs.
If you have questions about estate planning for young adults or estate planning for young families, please contact our law office to schedule a consultation.