The Importance of Estate Planning for Young Adults

Estate planning often gets associated with a checklist for seniors, with some people even dismissing it as a way for those with deep pockets to preserve their legacy and allow their heirs to avoid a hefty tax bill. But this way of thinking misses the mark on the many critical aspects of estate planning that are essential for adults of every age and financial means.

First, “estate” can be easily misconstrued as the property and possessions of those who are highly affluent. However, any individual who owns assets of any kind has an estate. It simply means the total money, real estate, and other assets that a person owns until the time of their death. An estate would include items like cash, savings or checking accounts, life insurance, and investment and retirement accounts, as well as tangible assets like vehicles,  jewelry and furniture. 

In addition, estate planning encompasses far more than the transfer of assets to the next generation. It can provide peace of mind that your important affairs will be managed according to how you want them to be handled should you become incapacitated, suffer cognitive decline, or die unexpectedly due to an unforeseen event. It’s important to keep in mind that an accident, illness, or tragedy can occur at any stage of life.

A well-devised plan can safeguard your finances not just for your heirs and beneficiaries, but also for you and the stability of your family if you’re unable to make decisions yourself regarding your medical care and personal business. Properly prepared, an estate plan can go far to ease the burden on loved ones and preserve your dignity and privacy. 

Moreover, if you have children or dependents, an estate plan is an essential tool for protecting their financial security and well-being. But regardless of whether you’re a parent, it’s important to have at least the basic legal documents in place that specify your wishes should the unexpected occur. When determining a suitable course of action for your estate planning needs as a young adult, be sure to take these considerations into account:

Documentation from an estate plan will give your loved ones access to your medical records in an emergency, and enable you to assert your wishes regarding medical treatment and end-of-life care if you become incapacitated.

Once you reach the age of majority in your state (18 in California and nearly all U.S. states), medical providers can’t disclose health information to anyone without authorization from you. This can be problematic if you are in an accident or another emergency and your care team can’t discuss your case with those you love, including your parents, or your spouse. The solution to this is to complete a basic estate planning document known as a HIPAA authorization, which allows you to name a person or persons to which providers or insurance companies can share your protected medical information. 

When it comes to medical care, another critical component of your estate plan is an advance healthcare directive. Also known as a living will, this document enables you to appoint an agent to make medical decisions for you if you cannot, and provides specific instructions, including those for life-sustaining treatments and pain medication, and organ and tissue donations. With HIPAA authorization and an advance health care directive in place, those you trust can make informed decisions that will concur with your wishes. 

Estate planning enables you to specify who will manage your financial and legal affairs if you cannot.

If you become incapacitated, an estate planning document known as a durable power of attorney (DPOA) authorizes another person to handle your finances. With a POA, a person you trust can pay your bills, deposit your checks, and file your taxes. In addition, this person can make investments on your behalf, and even make property decisions such as selling your home. Without a power of attorney for finances, family members or loved ones may have to get courts involved to assist, should it become necessary.

An estate plan allows you to name a personal guardian to care for minor children. 

If you are a parent to anyone under 18, preparing a will that names a personal guardian for their care and upbringing is a necessary component of your estate plan. In addition, it’s important to appoint a successor guardian in case circumstances change and the primary guardian is unable to assume responsibility. While it is unusual for both parents to die before a child turns 18, it’s best not to leave this decision to chance (i.e., the courts). Find tips on appointing a guardian for your children at Nolo.

An estate plan will protect your assets for loved ones — allowing them to be distributed according to your wishes. 

When it comes to your resources, a last will and testament is the foundation of your estate plan, used to delineate how your assets will be distributed and to which beneficiaries. A will also specifies an executor or executors legally responsible for carrying out instructions and handling your money, property, and possessions. However, it’s important to be aware that there are certain assets governed by laws that can override a will, such as those with beneficiary designations (e.g., a 401k) or right of survivorship. If you die without a will, state laws determine how your property will be distributed.

If you have assets over $184,500 in California and especially if you have children, it is generally advisable to consider creating a living trust in addition to a will for greater control over how your assets are managed. By setting up a living trust, you appoint a successor trustee (e.g., a trusted friend, family member, attorney) that can manage your children’s financial affairs and invest money and other assets for them until such time (if ever) that you designate.

A living trust can provide for a smooth transition of your assets, preserve your privacy, and allow your heirs to avoid the costs and delays of probate.

Assets that are placed in a trust are not subject to the court-supervised process of probate, which can be expensive and time consuming. Although fees and timeframes vary, the probate process often costs tens of thousands of dollars and may take between six to 18 months to administer. Another disadvantage of probate is that it is a public process in which just about anyone can access details of your finances and how you want your property disbursed. If you have a living trust, information about your finances and your beneficiaries can remain confidential.

Estate planning can help you make shrewd decisions about valuable financial strategies such as life insurance.

For many young families, life insurance is an excellent tool for safeguarding the financial security and well-being of dependents. And especially if you’re employed in a riskier occupation like law enforcement, it can provide valuable peace of mind. A life insurance policy will provide a tax-free lump sum cash payment to loved ones if you die unexpectedly, and it can also provide important benefits to you while you’re alive if you invest in a plan with coverage for certain contingencies (e.g., a monthly stipend if you become unable to work due to a disability.)

Although most individuals in law enforcement are offered some level of life insurance as part of their benefits package, you may find that the policy may not be adequate for you, depending on your personal financial situation. An estate planning advisor can help you determine whether it makes sense to supplement an employer’s plan with an additional policy.

Finally, with the many different factors and laws that can impact estate planning choices, most young people benefit from working with a professional with deep expertise in this critical area, such as a trust and estate attorney specializing in drafting wills and trusts, granting powers of attorney, and tax planning. Although a comprehensive estate planning package can get expensive, members of The Police Credit Union throughout California are eligible for a significant discount for these services through our partnership with Affinity Trusts. Start here to learn more.