Estate planning isn’t only for the rich or the old. Even the young and broke need to be thinking about how their assets will be distributed in the event of a tragedy.
“It doesn’t have anything to do with net worth. It has everything to do with taking care of the people you love,” says Meg Muldoon, assistant vice president of advanced markets at Penn Mutual Life Insurance Company. “You don’t want your parents to have to go through the probate process for your $5,000 checking account.”
Young adults don’t need to do anything complicated to plan their estate. Instead, they simply need a few vital pieces of paperwork to ensure a tragic situation isn’t made worse.
[Read: 5 Estate Planning Strategies to Keep Your Money in the Family.]
Planning starts with naming a decision-maker. Muldoon says the term estate planning can be misleading since the process encompasses more than making a will. It’s also something you should begin as soon as someone becomes an adult. “A lot of parents are surprised they can’t make doctor appointments or dentist appointments once their child turns 18,” she says.
At 18, a young adult’s first priority is to name a durable power of attorney and a health care proxy. These people will then have the ability to make health care and financial decisions in the event a person is incapacitated. The durable power of attorney is also helpful for college students who may be studying abroad and need a parent to assist with taxes or other financial matters while they are gone.
Muldoon understands cash-strapped young adults may balk at the idea of paying for these documents. However, they should not be put off. “Maybe your parents would be willing to gift you money for that,” she suggests.
[Read: 5 Reasons Millennials Aren’t Saving for Retirement.]
Think about beneficiaries and wills. Once a young adult has his or her first job, the next step in estate planning is to review beneficiaries. A first job may come with benefits such as a 401(k) plan and life insurance coverage. Young adults need to be sure a beneficiary has been named on each account. The beneficiary is the person who will receive the assets or life insurance death benefit after an account holder passes away.
Next, young adults should create a will. Without one, the court will decide who gets a person’s assets, meager as they may be. That could leave some loved ones empty-handed. “If, for instance, you have a long-term romantic partner to whom you are not married, that person will have few, if any, legal rights to your property unless you create a will,” says Anthony Criscuolo, a portfolio manager with Palisades Hudson Financial Group in Fort Lauderdale, Florida.
Scott Schwartz, principal of Bleakley Financial Group in Fairfield, New Jersey, says estate planning should also take into account any debts you carry. “It is not always about the assets you need to plan for,” he says. “Depending on what type of student loans you may have taken out, you could be leaving your estate on the hook for the balance.”
[Read: A Purple Rain Estate Plan.]
Be smart about keeping costs down. Twenty-somethings don’t necessarily have to pay an attorney to get these documents prepared. “With the rise of online resources, I think you can achieve a solid starting point with a DIY [template],” Schwartz says.
However, Muldoon advises caution when going the do-it-yourself route. She’s seen some clients use online templates and overlook significant issues because they didn’t understand all the nuances involved in their decisions. Even the best template can’t provide the personalized guidance of an estate attorney or planning professional.
What’s more, not all online forms and templates are created equal. Rather than use the first free form that comes up in an internet search, Muldoon recommends using a service like LegalZoom, which has a network of attorneys behind its forms.
Estate planning in your 20s may seem unnecessary, but finance professionals say getting started early is smart. “You may not need to make many decisions as a young adult, but making those decisions will lay groundwork for the more complex planning that will come later,” Criscuolo says. More importantly, having a solid foundation could mean less hassle and heartache if and when the unexpected happens.
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Why You Should Start Estate Planning in Your 20s originally appeared on usnews.com
