Millennials Need Estate Plans: The 3 Must-Do's (Part 1)
Being under 40 is no reason to neglect setting up an estate plan. Establishing your wishes for an extreme situation—even if it does not involve death or lots of assets—will spare loved ones much confusion.
According to a recent survey from Caring.com, six in ten American adults do not have a will or living trust.
Although older American adults seem to be more mindful when it comes to preparing for the inevitable—58% of people between ages 53 and 71, and 81% of people older than age 72 have estate planning documents—younger people are woefully unprepared. In fact, 64% of Generation Xers (aged 37–52) and an incredible 78% of millennials (aged 18–36) do not have a will. Moreover, 59% of millennials do not have a health care power of attorney, which allows someone to legally make medical decisions for you if you are unable to do so yourself.
Doesn’t everyone need someone to act on their behalf if hospitalized, regardless of age? Why do so many millennials ignore or postpone estate planning? According to the Caring.com survey, the two main reasons that people ignore or postpone estate planning were because they “don’t have enough assets to leave to anyone” (29%) or simply that they “hadn’t gotten around to it” (47%).
Millennials appear to put off estate planning because they feel that they have ample time before an estate plan is necessary. Maybe or maybe not. And in any event, there are many reasons to have an updated estate plan beyond worrying about death, which is a less likely event for a younger person.
However, this is not always the case, as life can be unpredictable. The reality is that passing without a proper estate plan can mean a world of confusion and stress for friends and family as they will have to make life-changing decisions without an understanding of the person’s wishes. Completing a proper estate plan can also help prevent wealth from going to unintended beneficiaries and can help heirs avoid lengthy and expensive court proceedings. In addition, doesn’t everyone want to ensure their children are taken care of, and avoid a messy family fight?
Estate planning also creates an opportunity to perform legacy planning, which may lower taxes and increase wealth transfers to the next generation.
The 3 essentials of estate planning below are the three essential elements of an estate plan that every millennial should consider in preparation for whatever life could bring. We are going to show you the first one in this post, and stay tuned because the other two will be posted shortly!
One of the greatest mistakes a person can make is passing away without a valid will. This can result in “intestacy,” which is another way of saying that the State will dictate how assets will pass to heirs.
To avoid this situation, create a will that clearly outlines how assets should be distributed.
A will usually includes:
Appointment of an executor (who carries out the provisions in the will)
Beneficiaries (people who inherit the assets)
Instructions on how and when the beneficiaries receive the assets
Guardians for any minor children.
When creating a will, also make sure that you review beneficiary forms for retirement plans and insurance policies (such as defined contribution plans, defined benefit plans, individual retirement accounts, life insurance, and accidental death and dismemberment insurance), because beneficiary forms can trump all other legal documents.
For example, if your will stated that Jim should inherit the proceeds of your life insurance plan, but the beneficiary designation of your life insurance plan named Dwight, the law would likely side with Dwight. Therefore, review beneficiary designations to make sure that they are consistent with current wishes, whatever they may be (as they could be different than what is stated in the will which you may or may not want).
And don’t forget taxes! Although the federal lifetime exclusion is over $11.2 million dollars per person, many states still levy an estate tax and the current lifetime exemption is due to sunset in 2025 (and could even decrease before then depending on who has their way in Congress).
Debra Taylor, The Horses Mouth