(Fortune) - Though “estate planning” may bring to mind visions of rich families squabbling over the ancestral silver, it isn’t just for the wealthy or older people, financial planners say. It can be beneficial for families with more modest assets and 20- and 30-somethings, as well.
The first time many people start considering creating an estate plan—which can include something as simple as crafting a will, to more complex maneuvers like establishing irrevocable trusts—is when they have children. That’s a good time to do so, says Jessica Majeski, wealth management advisor at Northwestern Mutual. But it can also make sense to do it sooner.
In particular, it makes sense for all adults to have a durable power of attorney and healthcare power of attorney drafted. These legal documents allow an individual to appoint another person to make financial and medical decisions, respectively, on her behalf if she becomes incapacitated or is otherwise unable to do so.
“I have a daughter who is 19, on her 18th birthday I had her sign a healthcare power of attorney,” says Majeski. “Those are really critical documents for any adult to have. One of the biggest misses that I see is that a lot of people don’t think about this. It’s okay until something happens, and then it’s not okay.”
Going a step further and creating a last will and testament may seem like overkill for an 18 year old, but Majeski says it’s important to think about estate planning once you start working or have assets in your own name.
It also makes sense for those without many assets, regardless of age, to create an estate plan in order to ease the burden on their families after they pass. In fact, creating an estate plan that can help your family avoid probate—the costly court-supervised process by which a deceased person’s assets are distributed and their debts are settled—or paying an attorney can actually be more impactful in situations where are only a modest amount of assets to pass on.
“Sometimes it’s a small amount that goes to the beneficiaries, right? And it’s still life changing. If someone deposited $10,000 to $20,000 in your bank account tonight, wouldn’t that change your life?” says Alexandra Mysoor, CEO of Alix, an estate planning platform. “But if they spend an exorbitant amount of money settling the estate, that just takes away from what is possible for them.”
As you get older, your estate plan will grow and evolve with you—it’s not a one and done task to be completed only when you’ve accumulated wealth or purchased a home, for example.
“There are two options for your estate. Either you can decide where you want it to go, or you can let the state you live in do it,” says Majeski. “Most people prefer to do it themselves.”
Basic estate planning tasks
There are a number of new platforms that aim to help people with their estate plans or estate settlement without charging what an attorney would, including Alix. But some of the most basic and consequential steps do not require much outside help at all.
One example: The simplest estate planning task isn’t necessarily creating a will, says Majeski. Instead, it’s simply naming beneficiaries on your financial accounts.
That includes things like a checking or savings account, 401(k), brokerage account, a life insurance policy, or similar assets. Naming beneficiaries on those accounts circumvents the probate process entirely, and inheritors will receive the assets more quickly and with fewer potential headaches.
“I am going to try to dispel the myth that the will is the most important estate planning document,” Majeski previously told Fortune. “There are still reasons to have a will, but a large portion of your assets can pass to who you desire without a will.”
Doing so is simple. Financial institutions typically prompt clients to name a beneficiary when they sign up for an account; consumers can also do this by logging into their online account. Multiple beneficiaries can be assigned to each account, and the account holder can typically elect what percentage of the assets held in the account each heir will receive.
Another simple way to avoid probate is to have a joint account with someone else. If one of the account holders dies, the other will still be in possession of it, which can be especially useful for spouses or for a child who is caretaker of a parent, for example.
For those without children or a spouse, Gene Farrell, CEO of estate planning software Vanilla, says to consider extended family members, friends, community organizations, or causes you care about when drafting a will.
“Just because you don’t have children doesn’t mean you can’t have impact,” he says. “Many charities are thrilled to have benefactors name them in their estate plans, but a lot of times people just don’t think about it.”
And even if you don’t have kids or significant assets yet, you may have pets—and more and more people are creating provisions in their wills for their pet’s care, says Farrell.
“Many times people, if they have a pet, they will set aside money in their trust or will to cover the expense of caring for their pet, and like with a child, name a guardian,” he says.
By Alicia Adamczyk
November 18, 2024
