It’s never too early to start estate planning; if you already have a family, getting your personal affairs in order is a must. The sooner you start planning, the more prepared you will be for life’s unexpected twists and turns.
The following tips, aimed at those under 40, can help you approach and simplify the estate planning process:
Start now, regardless of net worth. Estate planning is a crucial process for everyone, regardless of wealth level. Many people will say, “Well, I don’t have a lot of assets, therefore I don’t need an estate plan.” Maybe you only have debt, but it still applies. If you want the people around you to appropriately deal with your finances, a plan is still just as important.
This is especially true if you are responsible for financially dependent individuals, such as young children. “The less you have, the more important every bit you’ve got is to you and the people you care about,” says Lawrence Lehmann, a partner at Lehmann, Norman and Marcus L.C. in New Orleans. “If you don’t have much money, you really can’t afford to make a mistake.”
Have the “what if?” conversation with friends and family. Before jumping into the estate planning process, it’s important to establish exactly what you want and need to happen after you die and relay those wishes to those around you.
“We find that the best transitions and financial transfers happen when all family members are involved in the decision making,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity Investments. “This way, after a loved one is gone, no one is squabbling over a couch or going, ‘Why did person A get more than person B?’ If wishes are laid out clearly while the individual is living, they can share the rationale behind the decisions.”
Focus on the basic estate plan components. Life insurance, a will, an advance directive for healthcare, and a general power of attorney are all important aspects of an estate plan that should be established at the start of the planning process.
In the event of an untimely death, life insurance can replace lost earnings, which can be especially beneficial for younger individuals. Young people can’t afford to die. A household is going to lose a major source of income if something happens to one of the parents before they have had enough time to accumulate wealth. Also, the earlier you take out a life insurance policy, the more likely you are to be approved for reduced rates compared to older individuals.
Another important step is to draft a will detailing how you would or would not like your assets to be transferred to your designated beneficiaries following your death. A will should also outline any designated guardians for minor children or financial trustees, if applicable. Someone needs to look after the accumulated wealth that was put aside for those who may be too young to do it themselves. As a general rule of thumb, the more detailed you make your will, the better.
A trusted family member can be appointed in the event that you are unable to make financial decisions for yourself. This person can manage your assets, but also can perform tasks such as accessing your bank account and selling your home. This is done through a General Power of Attorney.
A similar power of attorney should also be appointed to be responsible for important health care decisions if you become severely incapacitated or disabled. An advance directive for healthcare outlines how you want your life to be treated in the instance that you cannot make decisions for yourself.
Utilize estate planning professionals. To draft these basic estate plans, experts recommend carefully selecting a team of professionals who will educate you and draft what you need based on your individual situation. It is crucial for your team of professionals to be working together. Setting up a trust for your children in your will does not do much good if the beneficiary designations on your life insurance policies do not name the trust. The money will never make into the trust and the whole plan is foiled.
Low-income individuals who want to start estate planning can review their state’s legal aid societies and bar services to see if legal consultations are available for little or no cost.
Continue to review your plan over time. Finally, your estate plan should never be a one and done thing. Every few years the documents should be readdressed to adapt to significant life events, tax law changes or even the addition of more children. It is also important to keep tabs on your insurance policies and investments, as they all tie into the estate plan and can fluctuate based on the economic environment.
