Why Millennials Are Preparing Estate Plans Earlier Than Their Parents Did
While estate planning documents - wills, trusts, powers of attorney, medical directives - have always been about more than financial planning, the primary driver in estate planning has generally been asset distribution. In the past, this focus on asset distribution has skewed estate planning toward well-established, middle aged people who have acquired assets and may be nearing retirement. However, more and more, millennials are choosing to prepare estate planning documents early in order to protect their assets and their loved ones.
Having grown up in the recession, millennials view financial planning much differently than their parents and some may think they don’t have enough assets to justify an estate plan. However, millennials are increasingly using estate plans to do more than simply plan for who will inherit their assets. Following are a few of the ways millennials are using estate planning to prepare for the future.
Determine a guardian for your minor children.
You may have already had this difficult conversation with your spouse. You may have even talked about it with loved ones or your guardian nominee. However, you may not have reduced your decision to writing. If it’s not in writing, there is always a chance that a disagreement could arise after it’s too late.
For example, imagine a young couple who has two small children. Both parents are killed in a car accident and neither has left a will nominating a guardian. Imagine the parents and siblings of the young couple each feel that they would be best suited to care for the small children. Maybe they even feel an obligation to help raise the children. Ultimately, a judge will determine who is best suited to be the guardian, and until a decision is made, the children may become wards of the state. Imagine the effect a disagreement like that could have on the children and the families, not to mention the potential for the judge to make a poor decision.
An estate plan can not only designate the person who will raise the children, but it can (and should) also address a number of other factors related to raising the children, including finances. Which brings us to:
Determine how property/assets will be managed until your children reach adulthood.
A millennial couple without a large estate might think that there are not enough assets to bother with this step. However, consider the value of your life insurance policies. Parents without a currently-valuable estate might have life insurance policies worth a significant sum. For example, our young couple who passed away in a car accident above may have had very little at this point in their lives, but let’s assume they had life insurance policies worth a total of $500,000. Upon death, the estate is suddenly worth a half million dollars. With two small children left behind, how should that money be used? If an estate plan does not answer that question, a court will step in and act as a conservator to manage the property, leading to additional burden and unnecessary expense.
The best solution is generally to leave any assets (including life insurance proceeds) to minor children via trust. The parents can determine who will manage the assets (the trustee), which can be the same person as the guardian or someone different. The trust can set up rules and requirements for the use of trust assets, as well as provisions regarding the distribution of trust assets to the children when they reach a certain age. The trustee is under a legal obligation to manage the assets of the trust for the benefit of the children and in accordance with the requirements of the trust.
Determine a plan for digital assets.
You probably don’t consider your photographs/videos to be a financial asset. While they may not be financially valuable, they are of considerable value to your families and descendants. If you’re a millennial, there’s a good chance that the entirety of your photographs/videos are stored electronically on your phones, cloud management accounts, social media, etc. Planning for who will be able to access and/or manage those photographs/videos is important in preserving those memories for your descendants.
Determine who is responsible for managing the estate.
After someone’s death there are a number of responsibilities to attend to. An estate plan determines who will be responsible for tending to those issues (the “personal representative” or “executor”). If a personal representative is not appointed in a will, the court must appoint one. This can lead to additional cost and delays in administering the estate.
A more sophisticated estate plan can also limit a court’s involvement entirely. For example, the use of a trust will allow the estate to avoid the more costly aspects of a judicial administration (which is called “probate”). Particularly, if you are a homeowner, the creation of a trust is a valuable aspect of an estate plan that will allow trust property to avoid probate and pass more efficiently to your heirs.
Plan for disability.
An often overlooked area of estate planning is deciding what will happen if you are disabled and otherwise unable to act on your own accord. Disability planning includes designating an individual (or individuals) who will make financial and healthcare decisions on your behalf in the event that you are incapacitated.
An advance directive (healthcare) and power of attorney (financial and non-healthcare related issues) allow an individual to make decisions on your behalf in the event that you can’t make decisions for yourself. From determining medical treatment, to paying your mortgage or other bills, your designee(s) can ensure that your affairs are in order while you recover.
Set up a free initial consultation with an experienced estate planning attorney.
Estate planning is no longer simply for pre-retirement. At Peck Hadfield, we work closely with our clients to ensure that each plan is tailored to the individual needs of our clients, who are often millennial age. If you have questions about an estate plan, we’d love to sit down with you for a free consultation to determine if/how we can help.