Ultimately, estate planning is about preparing for the unexpected (yet inevitable) emergencies in life, making it a smart move for people of all ages.
Why You Should Start Estate Planning Early
Legally speaking, 18 years old is the age at which individuals become an adult. According to Ruth P. George, Esq., attorney at Ruth P. George Law, PLLC in Williamsville, New York, this is the ideal time to start thinking about an estate plan because parents no longer have a legal capacity to make decisions for their children. “Just like health insurance, car insurance, or hazard insurance,” George said, “we have basic estate planning documents as a form of insurance to prevent problems and to create better futures.” Young people can prevent future conflict by proactively creating an estate plan early in adulthood. “It’s important for young adults to realize that the benefits of legal planning outweigh the disadvantages of being in crisis mode, even considering the time, cost, and work involved,” George said. Whether or not you have many assets, an estate plan will put you in charge of important decisions related to your health care, finances, and property.
What To Include in Your Estate Plan When You’re Young
Most young adults don’t need a complicated estate plan. Here are some key features that may be important to include at a young age.
Power of Attorney
Individuals of all ages should give power of attorney to a trustworthy relative or friend. This legal responsibility gives that person legal authority to act on your behalf in case you cannot physically or mentally make decisions by yourself. For young people, George pointed out, a power of attorney can be helpful in obtaining a bill from a college, signing a check out of the young adult’s bank account to cover an important expense, handling an inheritance, obtaining appropriate insurance, filing tax returns, or even paying for pet care.
Health Care Proxy
A health care proxy, also called a durable medical power of attorney, authorizes a person of your choosing to make critical health care decisions on your behalf. “If the health care proxy document is not in place, the ‘wrong’ person could be making health care decisions on behalf of the young adult and there could be conflicts among family members,” said George.
Account Beneficiaries
As you start to open financial accounts, such as checking, saving, investing, or retirement accounts, it’s important to name a beneficiary for each one. A beneficiary is the person you select to receive the assets in the account if you pass away. Taking this extra step avoids confusion and ensures your assets will go directly to the individuals you wish rather than having to pass through probate court, which can be a lengthy and costly process.
Last Will and Testament
Another must-have for estate planning at any age is a last will and testament. It’s the legal document that outlines how you want your assets distributed after death, including cash, investments, and real property (like your car). “A will allows for important considerations, even for young adults, such as nominating an executor who will handle the various matters of the estate administration, including handling those digital assets at death,” said George.
Residuary Clause
A residuary clause is part of a will that incorporates any assets received after death and is an important component for young adults to include, according to George. “One never knows if this may come into play, especially for young adults who may be named in other family members’ wills and trusts, as beneficiaries,” she said. “Those other family members may not be able to or just simply do not change their wills or trusts which name the young adult as a beneficiary, and we want that young adult to have a will that could account for this possibility.”
Other Items To Consider Including in Your Estate Plan
There are other situations to consider when creating an estate plan as a young adult, and many more will arise as you move through life. For example, student loan debt could be impacted by a death if there’s a co-signer on the loan. Once the primary borrower is eligible, it may be wise to refinance to relieve the burden from the co-signer in case the borrower passes away. Conversely, there may be implications if the co-signer passes away. “There could be a need to refinance the student loan in the event of a co-signer’s death if that is deemed an event of default.” George recommends reevaluating your estate plan at other times in life as well, including when you acquire additional assets, experience large valuation changes in your assets, start a new job, or go through a marriage or divorce.
How to Get Started
There are two primary approaches to creating your estate plan: hire an estate attorney or choose an online will maker. Most online will makers include power of attorney and health care proxy capabilities. But working with an estate attorney can take a lot of confusion out of the process, especially if you have more complicated components to consider, like a residuary clause.
The Bottom Line
You don’t need to be old or have a lot of accumulated wealth to need an estate plan. Start with key components such as naming account beneficiaries, power of attorney, and a health care proxy. As your life changes, you can add more intricate levels to your estate plan. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
