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Written by: Thomas Van Spankeren, CFA, CFP® | Rise Investments
Young families are embarking on a long-term journey to grow their wealth and family. While we understand that estate planning may not always be top of mind for healthy younger adults, planning for the long term is critical in the possible event of accident or illness.
Regardless of age, everyone should have an estate plan. However, many young families do not have essential estate plans in place. For instance, 62% of millennials do not have a Will or a Trust leaving many young families unprepared for the future.[1]
Estate planning should especially be a consideration upon:
- Marriage,
- Buying a home,
- Having children,
- Growing your nest egg.
What is Estate Planning?
Estate planning is an essential component to a young family’s overall financial plan. Estate planning involves putting together a strategy to manage a person’s financial situation in an event of incapacitation or death, as well as direct how affairs such as healthcare are handled if you cannot make them. At the core, estate planning ensures asset protection, legacy, clarity, and care for your loved ones, including your children.
Why Young Families Need Estate Planning?
Young families are concentrating on many things such as caring for their children, their careers and buying a home. With these life events and additional responsibilities, planning for an unthinkable event is critically important to ensure your desires are respected and your loved ones are cared for.
Questions of those in young families should ask themselves include:
- Who will be my children’s legal guardian should both myself and my spouse pass away?
- Are plans in place so that assets are distributed according to our desires?
- Who is going to make important medical decisions on my behalf if I cannot do so?
Key benefits of estate planning include:
- Assets are distributed according to your desires,
- Loved ones, especially your children, are cared for,
- Direction for your healthcare and finances in event of incapacity,
- Avoidance of probate.
Without proper estate planning, upon passing your family would be stuck with the burden of dealing with probate which is a lengthy, public, and pricey process where a judge oversees the administration of your estate.
The rationale for taking steps to avoid probate include:
- Significantly reduce out of pocket costs,
- Reduce delays as probate may take longer than a year,
- Privacy as probate is a public process.
What are Essential Estate Planning Elements?
Successful estate planning includes multiple elements to ensure your wishes are cared for.
1. Will
A will is a legal document that designates what happens to your assets upon your passing. A will allows your family to know who will receive what of your property and includes an executor who is in charge of carrying out your wishes.
Crafting a will is important for young families as it appoints guardians for minor children. Without designating a guardian, it is upon a judge to decide who becomes responsible for your children and can lead to family disputes. It is especially important for your children to have peace of mind should an unlikely event occur.
2. Revocable Trust
A revocable trust is a document created to manage your assets during your lifetime and distribute the remaining assets after your death as you desire. The trust can be changed during your lifetime as your circumstances change. A successor trustee is chosen who is responsible for distributing the assets to the beneficiaries according to the rules of the trust agreement.
Creating a revocable trust can help to bypass probate and allow more control over assets to your loved ones, including your children. Revocable trusts allow young parents peace of mind.
3. Power of Attorney Appointments and Healthcare Directives
A power of attorney appointment grants someone the authority to make decisions related to your healthcare and financial affairs if you are incapacitated. This allows for someone who you trust such as a family member to make critical decisions on your behalf.
Healthcare directives outlines your desires regarding lifesaving medical treatments surrounding what you want and more importantly, do not want. This directive provides clarity around your wishes so there is no confusion amongst your family regarding your desired healthcare.
4. Beneficiary Designations
Young families often times are contributing to retirement accounts such as 401(k)’s and IRA’s as a means to grow long-term wealth. They may also have a term life insurance to protect their growing family against a loss of income.
Updating the designated beneficiary for retirement accounts and life insurance policies are an important step to ensure assets are directed to their intended person such as your spouse or children.
What are the Steps in Crafting an Estate Plan?
Creating an estate plan is easier than one may think. The most important steps to take include:
- Take Inventory of Your Assets: Create a list of what you own including tangible and intangible assets,
- Understand Your Objectives: Recognize the needs of your loved ones, your desires and who you want to protect,
- Draft Your Estate Plan: Work with a professional to help create the essential estate plan,
- Put the Estate Plan into Action: Take actions such as funding the trust, updating beneficiaries and titling,
- Discuss with Loved Ones: Communicate the roles individuals have in your estate plan,
- Update on a Regular Basis: Life events happen rapidly for young adults, as such, update your plan, as necessary.
Conclusion
You are never too young to begin planning for the “what-if’s” in life. By engaging in estate planning, young families and their loved ones are offered peace of mind.
Related: Retirement Is Harder Than You Think. Are You Ready?
[1] Millennials and Estate Planning: Trust & Will’s 2024 Annual Report