In everyday life, you’re likely to hear “estate” used to describe a beautiful property with a large home and sprawling lawn, and that is one definition of the word. In personal finance, however, an estate is everything a person owns at death. So, an estate could include an estate.
Young people are not typically concerned with who will receive their belongings when they pass away. First of all, they don’t feel as though they have that many belongings to begin with. Secondly, they may assume everything would pass easily to their parents or spouse by law. Between the modules in my estate planning class (for a personal financial planning graduate certificate from Boston University) and interview of my podcast guest, Catherine Hodder, Esq., (and her book, Estate Planning for the Sandwich Generation), I learned that no one should take for granted that items will pass exactly the way they would have wanted.
Estate planning technically involves deciding in advance who should receive your estate when you die, but it is so much more than that. What if you were incapacitated instead? It is the opposite of fun to think about potential disability and your eventual death, but it’s hugely important.
Here are 4 estate planning documents even young people need (definitions are from Investopedia):
You have probably heard of a last will and testament before, and we all understand this is something we eventually need. A will is “a legally enforceable declaration of how a person wants their property and assets distributed after death. In a will, a person can also recommend a guardian for their minor children and make provisions for any surviving pets.” Do not take for granted that your state’s laws for disposing of property are congruent with your wishes. Absolutely, positively do not take for granted that the government knows who the guardian of your children should be. Further, if you don’t have a will, the process will be expensive, complicated, and time consuming. Your death will be painful enough for your loved ones without them having to worry about your lack of will as well.
Health Care Power of Attorney
Have you ever heard of HIPAA? There are so many privacy issues when it comes to people’s health. A health care power of attorney is “a legal document that empowers a specific individual to speak with others and make decisions on your behalf concerning your medical condition, treatment, and care.” You need a health care power of attorney so someone you trust can speak to doctors about your care as soon as you are incapacitated with an injury or illness. This person will know which doctors you see, which conditions you have, and what medications you take.
Advance Medical Directive
Should doctors attempt extraordinary measures to keep your body alive no matter what? This decision and others can be addressed in an advance medical directive, “a legal document that specifies the type of medical care that an individual does or does not want in the event they are unable to communicate their wishes.”
Financial Power of Attorney
Who will pay your creditors when you are incapacitated or gone from this life? A financial power of attorney is “a legal document giving one person the power to act for another person. The power of attorney is frequently used in the event of a principal's illness or disability, or when the principal can't be present to sign necessary legal documents for financial transactions.” Your loved ones will probably not know or have access to your financial information without this document.
Find an estate planning attorney from your state to create these documents. The benefits of having these in place and the peace of mind that go with them far outweigh the costs. Your attorney will also stress that your beneficiary designations on your retirement accounts, bank accounts, etc., are up to date because these accounts pass outside of the will. They will also want you to pay attention to how assets, like houses and vehicles, are titled.
Estate planning is the most morbid part of personal finance, however, if you’ve put a lot of thought and effort into building and protecting your wealth during your life, it makes sense to do the same in the event of your incapacitation and/or death.
Note: I am not an attorney. Please, really, contact one.