Estate Planning for Millennials
We know — it's hard to believe that millennials have suddenly grown up and now require estate plans. It probably has something to do with lattes and avocado toast and being unable to afford a home (just kidding!).
In all seriousness, though, if there were ever a generation that genuinely needs to have an estate plan in place, it would be our beloved millennials. While it's common to associate estate planning and things like wills and trusts with the wealthy or the older generations, we can assure you that as a millennial, you have so much more to plan for than you think.
So, if you're a millennial, you'll want to keep reading because we will tell you everything you need to know about your generation's estate planning in Huntsville, AL.
At What Age Is an Estate Plan Necessary?
Let's get this out of the way first: Most financial advisors, especially your Huntsville attorney, would tell you that creating an estate plan is recommended as soon as you become a legal adult. They would also recommend updating that estate plan every three to five years.
Why?
Because once you turn 18, you are now fully responsible for yourself. That means you're in charge of your finances, healthcare (in most states), and assets. As a young adult, you may think that you don't have anything that could be considered an "asset," but an asset refers to anything of value. So, at the very least, you have assets to think of if you have a car and a savings account.
Of course, you're not just a young adult anymore. Therefore, you've likely accumulated several more assets to account for. In addition, several life events have probably occurred, including marriage, remarriage, homeownership, children, pets, business creation, student loan debt, mortgages, etc. You may have even received an inheritance from your own parents for achieving a milestone in life like graduating college, and it's more than possible that you have elderly parents' care to think about as time goes on.
So much can change in just a year. That's why it's not only essential to create an estate plan to ensure your assets are accounted for but to continue to update it to reflect those changes. Therefore, the earlier you start estate planning in Huntsville, AL, the better.
Why Estate Planning Is So Important For Young Families
It's common for young families to put off estate planning. They're either too young and healthy to think about or busy with work and raising minor children. Most even find it challenging to think about leaving their spouse and young children behind.
However, accidents and illnesses happen — which is why it's so important for young families to take the time to put an efficient estate plan in place.
The most important thing to consider when estate planning for a young family is the children. If something happens to one parent, the other parent will take on the care and associated responsibilities. But what if that parent is physically unable to do so? What if something happens to both parents? Who will look after your young children then?
This part of estate planning revolves around choosing and officially naming a guardian for your minor children that would be responsible for their care should something happen to you and your spouse. Suppose you don't name a specific guardian in your will for your children. In that case, the court will have to appoint someone without knowing your last wishes — or your children and family members.
Another thing that young families need to consider is how they would want their assets distributed. For example, if there's a surviving spouse, the assets would be automatically transferred to that spouse and children — but only to a certain extent under the state's succession laws (which we'll get to in a moment). However, suppose both spouses pass away, leaving minor children behind. In that case, it's important to ensure that those children receive a sufficient amount of their parent's assets to provide for them and protect their future.
What Happens if You Don't Have an Estate Plan?
If you pass away without an estate plan or at least a last will, it's referred to as "dying intestate." Regardless of leaving a spouse and children behind, all of the assets contributing to your total net worth — which includes your home — will have to go through probate court so the state can evaluate and distribute your assets accordingly.
The primary problem with probate court is that it's time-consuming and costly. Your surviving spouse and children (or just your children) would have to wait anywhere between six to nine months, sometimes longer, just to receive their inheritances. Plus, any associated court fees, federal taxes, and liens would have to come out of your estate, directly affecting how much they receive.
What's more, Alabama's probate courts must adhere to the Alabama state succession laws, as previously mentioned. In short, this means that your spouse and children will only receive the first $50,000 - $100,000 of your estate, depending on whether there are biological children with another partner. The rest is distributed to surviving parents and siblings.
Depending on how much your estate is worth at the time of your passing, this could mean an ample amount for your family or barely enough to get by.
What's Typically Included in an Estate Plan?
Most people — not just millennials — don't know the first thing about estate planning. In fact, it's commonly thought that all you have to do is write a basic last will that states who gets what when you pass on. However, there's much more to it than that, especially if you have children or elderly parents to look after.
Here's an overview of the basic components of an estate plan:
A Last Will and Testament
Wills are the most basic and essential element of an effective estate plan. A will is a document containing instructions on how you would like your assets distributed once you've passed. This document can include virtually all assets and the instructions for things like your funeral arrangements or who you would want to take over your business.
Upon writing a will, you'll need to appoint an executor who will ensure your last wishes are carried out. The document must also be notarized and signed by a witness to make it official.
Living Trusts
A living trust is another official document often included in an estate plan. There are actually several different types of trusts that you can set up, and most can be either revocable or irrevocable.
However, they all share the common goal of asset allocation and protection. Setting up a trust requires choosing which assets will go to which beneficiaries and when. For example, you can choose for the assets within a trust to disperse on a specific milestone, at a certain age, or even when you pass on.
The unique thing about setting up a trust is that once the document is created, the assets named in it no longer legally belong to you. This lowers your estate's overall value, reducing your taxes later. It also protects those specific assets from the probate court, debt collectors, and other liens (while you're alive or dead) and keeps them private.
Powers of Attorney
Powers of attorney (POA) are written directives that authorize the individuals you choose to manage your affairs should you become mentally incapacitated. There are also several types of POAs: medical, durable, non-durable, general, springing, and financial.
Most people only need a medical power of attorney to make medical decisions on their behalf should something happen. However, having these directives is important if you run your own business or prefer someone else to handle your financial affairs other than your spouse.
TOD and POD Accounts
Transfer on Death (TOD) and Payable on Death (POD) are accounts on which you add a named beneficiary to receive the assets within said accounts once you pass on. TODs take care of accounts like stocks, bonds, IRAs, etc., whereas PODs generally take care of savings and cash accounts.
Both types supersede a will, which means they bypass probate court. Your named beneficiaries will receive the money or assets immediately upon death. Making your accounts transferable or payable upon death is a great way to ensure your family isn't left without financial support. However, these accounts aren't necessarily immune to taxes or creditors, so it may be better to allocate these assets into a trust when possible.
Guardianship For Minor Children
Your will should clearly state the appointed guardian you choose for your minor children. However, there's a lot to consider regarding guardianship for minor children, which means it's not as simple as naming a person you trust.
You'll need to assess the people in your lives and figure out who you can trust and who could take on this responsibility. There truly is a lot to think about, especially if the individuals on your list live out of state or start experiencing a decline in health down the road.
Moreover, you'll need to assess their financial situation, especially if you don't have much to leave behind for your children's care and needs. It's widespread to draw up trusts to financially protect the children's future while also setting up a trust for the guardian to support their care for your children.
As you can see, estate planning becomes more complicated when children are involved, so it's crucial to put an estate plan in place sooner than later.
Tips on Efficiently Creating an Estate Plan for Millennials
There's estate planning, and then there's estate planning for millennials. But, of course, it goes without saying that we're talking about a unique generation here, both in the modern and financial sense.
So, if you're a millennial who's embarking on estate planning for the first time, here are some essential tips that apply heavily to your generation:
Yes, You Do Need a Will
You may think I don't make enough money to create a will, or I've already created trusts; that should be enough. But you're wrong, and trusts are not enough to manage your estate should something happen to you.
Wills let you decide what will happen to your things when you're gone. It also lifts the burden off the shoulders of your loved ones so they won't have to figure out what to do with the rest of your stuff on their own. Even if you don't think you're worth much, you still have stuff, and even if you've created trusts, you'll need to consider the things, not those trusts.
Consider Your Pets
Millennials love their pets, and there's no denying that. Many even choose to forgo parenthood and adopt four-legged friends instead. First, it's essential to consider what would happen to your pet (or pets) should something happen to you.
Your Huntsville attorney will likely suggest a pet trust if you have pets, especially if you're single. This document will specify who you want to be your pet's new caregiver while providing specific instructions and the financial support for that person to care for the pet's needs. You can appoint a trustee (executor) to manage the funds you set aside for your pet's care if needed.
Protect Your Digital Assets
Do you have social media accounts? A blog? Spotify? Hulu? Netflix? A cloud account? Saved photos? Email accounts?
These are your digital assets; you probably have all of the above and more. You'll need to make a comprehensive list of your digital assets to determine what will happen to those accounts and saved items should something happen to you.
Get Life Insurance
You need life insurance if you have a spouse, children, elderly parents or siblings to look after, and even pets. Life insurance is especially critical if you don't have a lot of value in your estate because your payout can equate to the much-needed financial support for your family, pets, and anyone else you look after.
Plan For Your Debts
Millennials aren't just known for the love they have for their pets. The generation is also very much defined by its immense college debt — but we don't have to remind you of that.
While federal student loans are usually forgiven upon the borrower's death, private student loan companies are relentless, as are credit card companies. Both lender types will go after your estate and harass your family endlessly to settle your debts. Therefore, you'll need to plan for that debt, so it doesn't burden your loved ones should you pass on earlier than expected.
This is another reason why life insurance is important. It can cover the taxes on your forgiven loans while helping your family pay off your other debts, granted they have the financial support they need.
Meet With an Estate Planning Attorney
Arguably the most important step in planning ahead is getting the help of an attorney who specializes in estate planning. We know estate planning can be costly, especially with an attorney. However, it would be even more expensive if your documents were filed correctly or if you left something important out.
An estate planning attorney will ensure you have all your bases covered and help you create the most effective plan to guarantee that your loved ones are taken care of to the best of your financial abilities.
When you're ready to start estate planning in Huntsville, AL, we're prepared to help. Contact us today to set up a consultation with Sarah S. Shepherd or another experienced Huntsville attorney to talk about your unique estate planning needs.