If you are a young professional, estate planning is probably not even on your radar.
And why on earth should you have to think about it?
You don’t have many assets.
You’re single (and your grandma keeps reminding you about it).
Your family knows what you want.
You have other things to worry about.
You’re going to live forever.
However, estate planning is just as important (if not more important) for single young professionals as for older, wealthier, married-ier individuals.
But how do you create an estate plan? Where should you start? It’s a big question. Lucky for you, we have already done the heavy lifting. Here are 4 quick estate planning tips for young professionals:
1. Get a Durable Power of Attorney
In short, a Durable Power of Attorney is an estate planning document that gives someone (your “Attorney-in-Fact”) the ability to act for you in certain financial and/or medical situations.
“Why is this useful?” you may be yell-asking at your computer screen. And that’s a great question.
If you are incapacitated (say, in a coma) or otherwise unable to manage your affairs (say, lazy; or maybe you have a physical condition that makes it difficult to manage your affairs), having a Durable Power of Attorney can avoid the need for someone to establish a guardianship over you. Guardianships can cost many thousands of dollars in attorney’s fees and court costs, so it’s a good idea to avoid them if you can.
A power of attorney also establishes a clear priority of who gets to make decisions for you. Is there one parent or sibling or friend that you trust to make certain decisions for you?
Or consider it another way: Is there a parent or sibling or friend that you do NOT want to make decisions for you?
Keep in mind that even if you are married to your significant other, you might not have any legal right to make health care or financial decisions for them. At the very least, doing so is MUCH more difficult without a power of attorney.
A Durable Power of Attorney is one of the basic building blocks of every estate plan. Some would even say it is the most important. Because while other estate planning documents affect only your heirs and loved ones, a Durable Power of Attorney can affect you during your lifetime.
2. Sign an Advance Directive for Health Care
An advance directive for health care allows you to appoint a “health care proxy” to make medical decisions for you if you are incapacitated.
This is similar to a medical power of attorney; however, an advance directive also allows you to state your wishes for end-of-life care (e.g., “pulling the plug”) and organ donation.
Many people do not consider these end-of-life decisions. Have you thought about whether, or under what conditions, you would want to be kept on life support? That is what the “living will” portion of an advance directive dictates.
To give you an idea of what’s at stake, picture this:
Imagine you are in an accident. You are unconscious or otherwise unable to communicate. You don’t have any spouse or children, and your mother is forced to decide whether or not to keep you on life support. Even if you would not want to be kept alive, would your mother know that? Even if she did, would she be able to make that decision? Would you want her to HAVE to make that decision?
Not only can an advance directive make sure your wishes are known and followed, it can also reduce the stress and strain on your family by letting them know they are doing what you want.
Be forewarned: the terminology in this area can be confusing. Despite their similar names, a Living Will is not the same thing as a Last Will and Testament. So I encourage you to read more about advance directives and think about these decisions carefully.
3. Execute a Will or a Trust
Let’s say you ignore everything I say and die without an estate plan. In that case, the law says what happens to your estate (your “stuff”). This may mean that a relative gets assets you don’t want them to have; it may mean a close loved one or a friend gets nothing.
The point is that you have no control over what happens to your stuff.
A Last Will and Testament allows you to change this default estate plan and leave your estate to whomever you wish. Specifically, a Will is a written legal document stating what you want to happen to your “stuff” after your death. It can also determine other things, such as who you want to be the guardian of your minor children if you die.
A Will also names an executor (also known as an “administrator” or “personal representative”) who manages the probate process after your death. This is important to note:
Contrary to popular belief, a Last Will and Testament is still subject to probate. (FYI, probate is something you generally want to avoid. Read more about probate here.)
Alternatively (or additionally), you could create a Living Trust. There are a number of differences between a Will and a Trust, but it boils down to this: a Trust avoids probate, a Will does not.
Only 42% of U.S. adults currently have a Will or a Trust. That means only 42% of U.S. adults have a say over who gets their “stuff” after they die. That also means you can be better and cooler than 42% of U.S. adults by planning ahead with a Will or a Trust.
4. Name pay-on-death beneficiaries
While a properly funded Living Trust can be a surefire way to avoid probate, certain financial assets may be able to avoid probate through other means.
For instance, your 401(K) or IRA or similar retirement savings program allows you to name a pay-on-death beneficiary, i.e., someone who will receive those funds after you die.
You can also name pay-on-death beneficiaries on bank accounts, life insurance policies, and other types of financial assets. You may even be able to name a pay-on-death beneficiary for real estate.
Why is it so important to name a beneficiary?
If you designate a pay-on-death beneficiary on an account, and if that beneficiary is still alive after you die, that person will inherit the asset without needing to go through the probate process. This means your estate can save thousands of dollars and your loved ones can avoid the stress and strain of probate.
If you do not have a beneficiary named on, say, your insurance policy — or if you name your father as the beneficiary, but he dies before you and you forget to name a new beneficiary — that account will most likely be subject to probate after your death.
Typically, you can change the beneficiary on an asset by contacting the custodian who holds your account. For a bank account, the custodian would be the bank; for an insurance policy, the custodian might be the insurance provider. When in doubt, talk to your financial adviser for assistance.
Estate planning is crucial for young professionals.
As a young professional, you don’t need a “Fort Knox” estate plan with all the bells and whistles. That kind of plan can be useful (and in some cases advisable), but unless you have significant assets a basic plan will usually do just fine. But without any kind of estate plan you leave yourself, your assets, and your loved ones at the mercy of the Court.
For more information about estate planning and other legal concepts, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
David M. Postic is an associate attorney at Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]