Most young adults don't think about wills and estate planning are things they need to be concerned about -- at least for now. Yet all adults, no matter their age, should have some type of estate plan.
Young adults likely do not need anything complex; just a solid foundation that can be built using a few basic documents. Here are the key pieces of paperwork that can help jumpstart estate planning for your younger clients -- or for your clients' adult children.
1. HEALTH CARE ADVANCE DIRECTIVES
People are often surprised to learn that no one -- not parents, spouses or siblings -- has the legal right to make medical decisions on someone else's behalf without specific authorization. Such instructions are typically outlined in advance directives. These documents allow individuals to name another person to make medical decisions on their behalf, in case a physician determines they cannot make them on their own.
Each state has its own rules about how to create advance directives, and many states (or state agencies) have made sample forms available online for free.
Many young adults might not see the need for such a document. However, in the event of an accident or an unforeseen medical event, without an advance directive, families may not be able to agree on a particular treatment or course of action and the matter could end up in court.
This was the tragic case with Terri Schiavo, who was in her mid-20s when she collapsed and went into a coma. She did not have an advanced directive, which added to the multitude of issues resulting in a bitter, years-long dispute between her family members, all battling over her care.
2. DURABLE POWERS OF ATTORNEY
These documents authorize a named individual, known as an attorney-in-fact, to make legal and financial decisions on your client's behalf.
Again, this is a what-if document, and young adults may not think they need one. But it's essential that they give serious thought to these powers of attorney.
Here's one reason: Although these documents are meant to allow access to assets in case of an unanticipated incapacity, they are often effective immediately upon signing. And due to the powers granted, assets that end up in the hands of the wrong individual can be mismanaged or, worse, stolen.
So it is important to name only a trusted individual.
Another issue: Without a power of attorney, if an individual is not able to manage their own assets, there is often no alternative except to seek court authorization in the form of a guardianship or conservatorship. This can be expensive, time-consuming and, again, emotionally difficult for family members.
If an individual dies without a will, state law dictates who will receive assets. For single individuals without children, typically parents will inherit property.
Some people might be comfortable with this outcome. But if they're not, a will is necessary to ensure that the proper persons will inherit.
In addition, once an individual has a child, future guardians for the child should be named in the will.
4. BENEFICIARY DESIGNATIONS
For many young adults, work-related assets -- such as group term life insurance or 401(k) plans -- are their most valuable property. These types of assets often get passed by beneficiary designations -- forms that are made available by the employer -- rather than by will.
Often young people are not aware of this; or even if they are, they simply don't get around to filling out the forms.
Not naming a beneficiary, however, typically makes it more difficult for family members to obtain the assets in the event of death.
5. PRENUPTIAL AGREEMENTS
I've already written in depth about prenuptial agreements, but they're worth another mention here -- because many people either marry in their 20s or, at least, have met their eventual spouse.
Encourage young clients to consider a prenup in order to protect not only existing wealth, but also assets that could be subject to division in divorce. These include gifts from family members, future inheritances, interests in startup businesses, among others.
While this list may seem overwhelming for your clients, the good news is that most of the above documents (except prenups) are relatively straightforward and inexpensive. Some of the documents, such as advance directives, are even free.
It likely goes without saying that the best time for your clients to put each of these documents in place is before they actually need them. Once your clients do actually need these documents, they may find it's too late to get them.
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