The Essential Estate Planning Checklist for 20-Somethings
Estate planning usually isn't something people start thinking about until they're older but it's never too soon to start mapping out your long-term goals. Deciding how you want your assets to be divvied up or planning ahead for your end-of-life care might seem a little morbid but you have to be prepared for the inevitable.
The average 20-something may not see the need for things like a will or a decent amount of life insurance but there are some good reasons to reconsider. Even if you're young and healthy, there's always the chance that you could be thrown a curveball. If you're still not convinced, take a look at our estate planning checklist of what you should have and why.
1. Life insurance
Life insurance is designed to do several things, depending on what your financial situation looks like. If you're married and you're the primary breadwinner, a life insurance policy can help to cover the income gap until your spouse gets back on their feet. Even though millennials are putting off marriage longer, there are still plenty of 20-somethings out there who are pairing up permanently.
Many young adults are also staying at home with Mom and Dad longer to save money but for some of them, it's to help aging parents out financially. If your parents are older and you've assumed some of the responsibility for their bills or medical care, a life insurance policy is a must to make sure those costs would still be covered if something happened to you.
Even if you're not married and your parents are able to take care of themselves, life insurance is still a good bet if you're knee-deep in student loans. The average 20-something leaves school with right around $30,000 in student debt and having insurance ensures that no one else is left footing the bill if you pass away unexpectedly.
If you're not sure where to get started with buying life insurance, you can compare rates through Intelliquote.com or a similar site. As long as you have no major health issues, you should be able to get covered in your 20's for just a few dollars a month.
2. Last will and testament
The purpose of a will is to decide what happens to your property and other assets after your death. If you don't have a will, your estate is divided according to the inheritance laws in the state where you live. When you're young, your estate may be relatively small and a will may not seem like a necessity. On the other hand, it's something millennials can't afford to overlook if they own a home or they've managed to accumulate a good amount of savings.
A will is also a good idea for 20-somethings who have young children. In addition to naming beneficiaries for all your assets, you can also use a will to specify a legal guardian for your little ones. That's a crucial part of the estate planning process you don't want to omit. If you forgo naming a guardian, who ends up raising your children could be decided by the state in situations where the other parent isn't a suitable choice.
Each state has different laws on what's required to write a will. You can check with your local probate office or bar association for the complete rundown on what the rules are. If your estate is pretty straightforward, you may be able to use a site like LegalZoom to download and complete the forms you need without having to shell out money for an attorney.
3. Living trust
If you've managed to score a great-paying job that's allowed you to build some wealth early on or you decided to go the entrepreneurial route and launch your own business, setting up a living trust may be the next step in your estate plan. A living trust deals with how your assets are managed but it's a little more exhaustive than a will. The other key difference is that it's in effect during your lifetime and beyond.
For example, if you own a business you can use a living trust to specify how you want it to be run if you become permanently incapacitated. Twenty-somethings who have kids can also use it to plan for their financial future by specifying when and how they're able to receive their inheritance.
Setting up a trust is a little more complicated than writing a will because it involves naming a trustee to manage your estate and transferring your assets to their control. You can find all the documents you need online but millennials who are dealing with a lot of property or business assets might be better off talking to an estate planning attorney first.
4. Health care directive
Statistically, 18- to 34-year-olds are more likely to pay a visit to the emergency room or end up dying because of an accidental injury. If you were to be involved in a serious accident, it might fall on someone else to oversee your care. An advance health directive ensures that any specific wishes you have about what treatment you do or don't want in end of life situations is upheld.
In situations where you're only out of action temporarily, it's still helpful to give another person legal authority to make decisions on your behalf. A health care power of attorney covers any medical issues you may be dealing with while a durable power of attorney lets your representative handle your finances.
Generally, you can find the forms you need for health care directives or power of attorney through your state attorney general's office or your local health department. Just keep in mind that what you want in your 20s might be much different when you're in your 30s or 40s, so you should review your health care and other estate planning documents regularly to make sure they're still accurate.