When you’re young and just starting out — simply worried about setting aside a few bucks to invest and dwindling down that stack of loans — it’s pretty likely that the last thing on your mind is what would happen if “something happened to you.”
But while it’s not fun to talk about, having a plan for such a situation — called an estate plan — is important.
Yes, you do have an estate.
The word “estate” might conjure up images of fancy houses on giant plots of land, but really, your estate is simply everything you own, including checking and savings accounts, a car, a house, investments, retirement savings, insurance policies, furniture and other personal possessions.
And you should have an explicit plan of what should happen to that estate when (not if — sorry, but it will happen eventually) you pass away.
As EstatePlanning.com aptly sums it up:
“Individuals put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think it.”
Guilty. In fact, I would say just about every reason on this list applies to me.
Sure, I’ve designated my parents as the beneficiaries on my 401k plan but, beyond that, nothing. In fact, the only reason this even crossed my mind is because my mom brought it up at dinner the other night. (Yes, it was quite the pleasant meal.)
My mom always tells the same story: One day, my dad came home from work late. He had been stuck in traffic, but my worrywart mom hadn’t been able to get a hold of him during that span of time and her mind started running through the worst possibilities — one being that “something had happened to him.”
At the time, my brother and I were both under the age of 2.
While in the end, my dad was fine, she realized then that they needed a plan in case such a nightmare came true. Had he passed away before they made their wills and so on, chances are my mom would have only gotten a small share of his estate — likely not enough to live on with two small kids.
See, if you die without a will, the state will decide who gets what without considering your wishes or the needs of those who survived you. My mom’s wise advice: Don’t wait. You don’t want to have two kids and a scary situation when you realize how unprepared you are.
EstatePlanning.com echoes this sentiment as well, noting that individuals put off making a plan and “then, when something happens to them, their families have to pick up the pieces.”
On the other hand, actually taking care of such unpleasant details ahead of time can allow you to achieve maximum savings of administrative costs and death taxes, allow you to dispose of your estate according to your wishes and will help avoid possible family disputes or confusion.
Convinced yet? Good.
There are countless resources out there to help you get the ball rolling on making an estate plan. One such example: CNN Money’s easy-to-understand “Money 101” lesson on the topic.
Off the bat, it describes three basic elements and three basic questions to consider during the process of making an estate plan. The elements of an estate plan are:
- A will
- Assignment of power of attorney
- Living or healthcare proxy (or medical power of attorney)
And the basic questions to answer, which apply to each element in order, are:
- Who do you want to inherit your assets?
- Who do you want to handle your financial affairs if you’re ever incapacitated?
- Who do you want to make medical decisions for you if you become unable to make them for yourself?
Once you answer all those questions, the process is relatively simple.
For the will: After you write out precisely who will get what, the document must be signed by you and two different witnesses (adults who are not beneficiaries). You can hire a lawyer for this process, use free software or simply write it up yourself.
In terms of granting power of attorney and medical power of attorney, a legal document — which can be found online — must be witnessed and notarized as well.
Again, none of this is fun to talk about but, whether you like it or not, you’re an adult. You have possessions and assets that likely will outlive you.
Make sure your hard-earned investments, savings and so on don’t end up somewhere — or going to someone — you don’t want them to.
Like what you see? Sign up for our Young Investors e-letter and get practical investing advice delivered to your inbox every week!
