When Should I Start an Estate Plan?
Most people don’t spring out of bed on their eighteenth birthday, eager to start their day with a good breakfast and a visit to the estate planning attorney. In fact, many people wait decades before making an estate plan, and some never make one at all. Often, the reason they give when asked is, “I’m waiting until I need one.”
The reality is that every adult—even a newly-minted eighteen year old—needs an estate plan. However, the composition and complexity of that plan will vary with time and life changes. Let’s take a look at some detailed answers to the question “When should I start estate planning?”
Estate Planning for Young Adults
Very few young adults have any type of estate plan in place, and there are a few reasons for that. First, most people in their late teens and twenties are in good health, and rightly consider themselves decades away from death. Compared to people in midlife, they usually have fewer assets to leave to loved ones, and fewer dependents whose support they need to worry about.
So, why do young people need an estate plan at all? At this age, for most people, it’s less about distribution of financial assets in the event of death. Instead, estate planning in young adulthood should focus more on incapacity planning: who can make medical and financial decisions for you if you should become legally incapacitated. A sudden injury, illness, or accident can happen to anyone, and it’s important for every adult to have someone appointed to make their important decisions if they are unable to.
Many young people are accustomed to their parents filling that role, and do not realize that that parental authority evaporates on their eighteenth birthday. In order to allow their parents (or someone else) to handle financial and medical decisions for them, they need a durable financial power of attorney and a patient advocate designation (PAD).
While estate planning for young adults often prioritizes incapacity planning, young adults should also consider having a will, especially if they have minor children, or want to leave any of their property to someone who is not in their immediate family.
Estate Planning for Young Couples or Families
When people who are starting a family ask “At what age should I consider estate planning?” the answer is, emphatically, “Whatever age you are today.” When you are married, and especially when you have young children, you have other people depending on you. If you are married with no children, you should have, at a minimum, a last will and testament and an incapacity plan that includes a durable financial power of attorney and a patient advocate designation.
If you have a young child, you will want those things plus an appointment of a guardian for your child in the event both you and the other parent are unable to care for her. You can include such an appointment in your will. You will want to take other steps to provide for your child’s future as well, such as being sure you have adequate life insurance.
Since a child who is under 18 would ordinarily have to have a conservator appointed by the court to manage their inherited assets, you may want to avoid that need by establishing a living trust. The trustee of the trust can receive and distribute assets for your child’s benefit until they become old enough to manage their inheritance. With a conservatorship, a child becomes entitled to their full inheritance at age 18 when they become a legal adult. With a trust, you can designate when and how your child receives assets well beyond that age.
Estate Planning at Midlife
In your forties, fifties, and into your sixties, your estate planning needs continue to change. Many people at midlife are seeing career growth, and their children are getting older and leaving home. Planning needs may shift toward protecting wealth that you have begun to accumulate, and you may no longer need to worry about appointing a guardian for your children.
Your children may be legal adults, no longer as dependent on your financial support for survival. But at this stage, you may be thinking about how your planning can help them continue to thrive after you are gone.
If you haven’t considered a trust up until this point, it’s a good time to explore whether a trust might be right for your evolving needs. In addition to providing your children with income in a responsible way, trusts can offer many other advantages. Different types of trusts can achieve a range of goals, including protecting assets from creditors, tax planning, business succession planning, and providing for a loved one with special needs.
Another consideration at midlife is that many people have divorced and remarried. If that is your situation, it’s important to speak with an estate planning attorney to ensure that both your new spouse and children from a previous relationship are provided for as you intend. Doing so can help to prevent conflict and probate litigation after your death.
In your fifties and sixties, you should also be aware of your other assets that pass outside of an estate plan drafted by your attorney, such as retirement and investment accounts with beneficiary designations. At this point in your life, these assets may be significant. Make sure that your beneficiary designations are up to date for these accounts as well as for life insurance policies.
Estate Planning After Retirement and Beyond
As you enter your late sixties and seventies, it’s likely that you are increasingly concerned about the legacy you will leave behind. By this time, you may have grandchildren or even great-grandchildren. Your estate plan can help to ensure that you remain an important presence in their lives long after you are gone, through financial gifts that will help them get an education and start their adulthood on a sound financial footing.
In addition to helping family members, you may want to use your assets to benefit favorite charities or religious organizations that have been meaningful to you. Trusts can be an excellent way to achieve these aims. Certain types of trusts, such as charitable remainder trusts, make distributions of income to your loved ones for a specified period and, at the end of that term, distribute the remaining trust assets to a charity or charities of your choice.
Of course, at this age, incapacity planning is as important as ever, if not more so. As at previous stages, having a trust in place can help with incapacity planning, as your successor trustee can manage assets in the trust for your benefit. However, you should still have a durable financial power of attorney in place. For your medical needs, you will want a patient advocate designation in place. In addition to designating a person to make medical decisions for you, your PAD can define your preferences for care, including end-of-life care, offering crucial guidance to your advocate when it is most needed.
When Should I Set Up an Estate Plan?
Regardless of whether you’re just starting out on your adult path, or looking back at the life you have built, it’s worth taking the time right now to make sure your wishes are known and will be honored. To learn more about making or updating an estate plan, contact Suzanne R. Fanning PLLC to schedule a consultation.