For a lot of young people, estate planning seems like something that’s only important if you’re rich or older. After all, most people don’t own very much when they are in their early 20’s. Yet the fact is that everyone has an “estate,” whether they realize it or not, so it is important to take time to plan for what happens to it when you’re gone.
It might seem early to start worrying about these types of things, but by taking the initiative now, you avoid creating problems for yourself and your loved ones in the future.
What Is Estate Planning?
Estate planning can be seen as “end of life” planning: it is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation.1 This encompasses several medical and financial matters: it includes the creation of documents that determine what type of medical care you will receive if you are rendered unable to make decisions for yourself, along with what will happen to your various assets after your passing.
Why Is It Important For Young Adults?
The most obvious reason why you should consider estate planning early is that you never know what life will throw at you. Life doesn’t slow down for anyone, and if the COVID-19 pandemic has taught us anything, it’s that tragedy can come suddenly and unexpectedly. Additionally, once someone turns 18, they are considered an adult in the eyes of the law and must make important legal, financial, or health-related decisions for themselves. This means that if they are rendered unable to make such decisions and have not assigned someone to handle them if they are incapacitated, their friends and loved ones will have little-to-no say in the matter. As such, it is important to have your medical and financial wishes in writing, otherwise, you or your loved ones could wind up in some complicated and emotionally taxing situations.
When developing an estate plan, there are several key documents that you need to have in place. These include:
● Medical Power of Attorney: A legal document where one person (the principal) gives another person (the agent or attorney-in-fact) the legal authority to act on their behalf for medical matters.2 While a general POA ends the moment that the principal is incapacitated, while a medical POA typically includes language that ensures that the agent’s authority continues even if the principal is incapacitated.3
● Living Will (or Medical Care Directive): An advanced medical directive that includes detailed instructions for your personal medical treatment that both healthcare providers and caregivers are expected to follow if you are rendered unable to make decisions for yourself. Often used in conjunction with a medical POA to make sure that one’s medical-related wishes are followed.4
● Will: A legal document breaking down your wishes regarding who does (and does not) receive your various assets after your death.5 The most common form of will is a testamentary will, also known as a last will and testament. Along with allocated assets, testamentary wills can also be used to appoint guardians for minors, name the executors who carry out the will’s directions, and set up trusts for beneficiaries.6
● Trust: A legal document in which you grant another party the authority to handle your assets for the benefit of your beneficiaries. There are two main types of trust: a living trust (which is created while the trustor is alive and takes effect at the time of their death) and a testamentary trust (which is included as part of a testamentary will).7
Start the Conversation
The benefits of estate planning can seem far off from where you are now, and obviously, everyone has their own unique legal needs to consider. Yet taking the initiative on estate planning has clear benefits, even for younger adults. By creating a solid foundation for your estate planning, you eliminate some of the uncertainty of life and are better prepared for the future. Even if you don’t have a fully fleshed-out estate plan, just getting started will make the process feel less daunting when it becomes a higher priority.
1. NerdWallet. (2021, August 2). Estate planning: A 7-Step checklist of the basics. NerdWallet. https://www.nerdwallet.com/article/investing/estate-planning.
2. Kagan, J. (2021, May 19). Power of Attorney: Allowing One Person to Act on Behalf of Another. Investopedia. https://www.investopedia.com/terms/p/powerofattorney.asp.
3. Gumaer, D. (2018, September 11). The Difference Between Durable and General Power of Attorney. Griswold Home Care. https://www.griswoldhomecare.com/blog/2018/september/the-difference-between-durable-and-general-power/.
4. U.S. Department of Health and Human Services. (n.d.). Advance Care Planning: Health Care Directives. National Institute on Aging. https://www.nia.nih.gov/health/advance-care-planning-health-care-directives.
5. Jarrell, M. (2021, May 19). Will vs. Trust: What’s the Difference? Investopedia. https://www.investopedia.com/articles/personal-finance/051315/will-vs-trust-difference-between-two.asp.
6. Kagan, J. (2021, June 9). Testamentary Will. Investopedia. https://www.investopedia.com/terms/t/testamentary-will.asp.
7. Jarrell, M.