Many young adults wonder: Is estate planning something I should care about?
The answer is a resounding, YES. Young adults are not too young to consider a responsible estate plan. Anyone over eighteen, and of sound mind, may make a will.
The most important topics for a young adult to consider in developing an estate plan are:
1. Guardianship of children in the event of death or incapacity
If you have children, you definitely want to provide for who is to be the children’s legal guardian if you die or become incapacitated. If you have not nominated a guardian, someone may petition a judge may appoint them to be your children’s guardian. If the judge grants their petition, they will be your children’s guardians.
The guardian the judge appoints may not be the person you want to be your children’s guardian. (Several of my clients have come to me to help them create a guardian nomination because there are specific relatives whom they don’t want to have guardianship over their children.)
In some states, there are two types of guardians: the guardian of the person and the guardian of the estate. The guardian of the person makes decisions on where the child will live, where the child goes to school and the child’s medical care. The guardian of the estate controls the child’s property.
2. Trustees for children’s property
You can also create trust for your children.
A trust is a legal device, where one person (the trustee) controls property for the benefit of another person (the beneficiary). The trustee is the “legal” owner; the beneficiary is the “equitable” owner or the “beneficial” owner.
Many parents with young children, who create estate plans, create trusts. A trust is a useful tool for transferring property to someone, such as a child, who can’t manage the property for himself.
While the law varies across jurisdictions, in general, the differences between a guardian and a trustee are as follows:
- If you nominate a guardian, the prospective guardian has to go to court. A judge must appoint him as guardian before he can become the guardian. A trustee, however, does not have to go to court to become the trustee; he becomes the trustee whenever the trust document says he does. The trustee won’t have to spend the time, and the legal fees, that it costs to go to court.
- For a minor child, the guardian’s authority terminates when the child turns eighteen unless the child is disabled. However, if you create a trust, you can specify that the trustee’s authority will continue as long as you desire.
- A guardian of an estate may control all of a person’s property. A trustee may control only the property that is in the trust.
- A guardian of the person may make decisions about where a person lives, the person’s medical care, etc. A trustee may not make personal decisions for a beneficiary; the trustee may only make financial decisions.
3. Transfer of property in the event of your death
If you have property, you will need to provide for how this property is to be distributed when you die. If you die without a will, you will be deemed to have died intestate. Your state’s law of intestate succession will then determine who gets your property. Your property may end up going to people who you would prefer not to receive it.
You may provide for the transfer of property in the following ways:
- By will. If you transfer property by will, your family will have to go to the probate court, and the probate court is expensive and time-consuming. You may want to look for alternatives to probate.
- By a trust. See the description of trusts, above. You may also create a trust, where you are the trustee, and the beneficiary, during your lifetime, and, after you die, someone else becomes the trustee, and someone else becomes the beneficiary. This type of trust will help you avoid probate.
- By placing property in joint tenancy with right of survivorship. If you place the property in joint tenancy with someone else, the other person has the “right of survivorship.” When you die, the other person automatically takes possession of your share of the property.
- By a Transfer-On-Death Deed. A transfer-on-death deed is commonly used to transfer land. If you sign a transfer-on-death deed and file the deed with the local land records office, then, when you die, the person you name in the deed automatically takes your property when you die. You may revoke a transfer-on-death deed any time before you die.
- By lifetime gifts. Some people choose to avoid probate, by transferring property during their lifetime.
- By contractual arrangements. Contractual arrangements are popular ways to transfer life insurance policies, annuities, IRAs, retirement benefits, and bank accounts. Your financial institution may allow you to transfer, by contract, your property that the financial institution holds. Ask your lawyer and your financial institution.
You may execute a “springing durable power of attorney”, in which you nominate a person to make decisions for you if you become incapacitated. You may also execute an “advance directive”, where you choose someone to make medical decisions for you if you become incapacitated. You may also create a “living will” in which you state whether you want to be kept alive, or don’t want to be kept alive, if you are terminally ill, persistently unconscious, or in a persistent vegetative state.
The law as to living wills, advance directives, and springing durable powers of attorney, varies across jurisdictions. Consult an attorney in your jurisdiction as to how to prepare your documents.
The Bible says, “A good man leaves an inheritance to his children’s children.”
You are not too old to prepare an estate plan. If you have young children, it’s particularly important that you make provisions for them. Consult an estate planning attorney or advisor today.