Do you have an estate plan? If you’re like 90% of my clients, your answer is probably no.
Let’s be honest. Nobody likes to think about dying. Or the possibility of dying. Or you know, whether there will be a point in your life where you’re unable to make decisions for or care for yourself. Thinking about this seems especially unreachable when you’re in your 20, 30 and 40s and have a lifetime ahead of you.
As a CERTIFIED FINANCIAL PLANNER™ professional though, I can tell you that as uncomfortable as it is, an estate plan is not about you. It’s about those you are leaving behind or who will be left to make decisions on your behalf. It’s a way for you to protect your wealth, create a legacy, and to make sure that the people you love are well taken care of in a worst-case-scenario. Additionally, when you have a partner and young family who rely on you, it’s especially important to take some time to reflect on the decisions that would need to be made if you were no longer around.
What is an end-of-life plan?
An end-of-life plan is a roadmap for people to follow in case you face the unthinkable. Whether you pass away unexpectedly, or you become incapacitated and unable to control your estate, the important people in your life need to know what to do with your assets and care for your dependents.
There’s no way for us to predict the future. Accidents happen, and your health can take a sudden turn – even if you feel like you’re in perfect health with a long life ahead of you. Nobody wants to think about the possibility that you could leave your kids, your spouse, and your family behind. But should that happen, it’s even more painful to imagine leaving them behind without a plan to make sure they’re financially and emotionally taken care of.
What to include in your end-of-life planning
You need a will
What does a will look like in your 30s (or 20s and 40s if we’re honest)? Probably a lot more detailed than you’d think.
Can you imagine a world where you aren’t playing a decision-making role in your child’s education and living situation? Would you hate for your favorite charitable organizations to stop receiving your regular donations? Have you thought about what’s going to happen to your house, or all of your stuff if you pass away earlier than expected?
All of these things, and more, can be cleared up by a will.
A will is a legal document intended to outline your wishes after you die. About 60% of the American population don’t have wills. If you don’t have a will, regardless of how you want your assets to be divided, the state will make those decisions for you. Typically, your estate will go entirely to your next of kin without a will. For some, this might mean their spouse or kids. For others, it could be their parents, siblings, half-siblings, or next living relative.
That’s just talking about your assets. If you have kids, with no will, and both you and your spouse pass away – the courts will appoint a legal guardian for your kids.
This is why it’s important to have a will in place – even if you’re in your 20s or 30s. Your will outlines everything you want for your assets and your immediate family. Early in your life, your will should include:
- How you want your assets divided
- What you want done with every account in your name (setting a beneficiary can also help with this step)
- What you want to happen to your kids if you and your partner both die. This includes who they’ll live with, how you’ll give your assets to them, where they’ll go to school (if they’re minors), and what kind of medical decisions need to be made for them (this is especially important if your child has a disability or if your child is receiving ongoing medical treatment and/or therapy)
- What you want to happen to your pets
- What organizations you want to donate to
It’s also a good idea to make sure your will is regularly updated. My husband and I had listed our parents as chosen guardians for our kids in case anything happened to both of us. However, as time went on, we ended up changing our wills to reflect our new choice: my brother-in-law. We still love our parents, but as we all aged, it became apparent that my brother-in-law would have a similar parenting style and was the best fit for the job.
You need a living will, too
Having a will is a critical piece of your estate plan, even when you’re young. But a living will is equally important. A living will, like a traditional will, is a legal document that’s intended to outline your wishes. A traditional will takes place in the event of your death, and a living will is valid when you’re still living but unable to make important decisions about your life and your dependents.
A living will also contain an Advanced Care Directive (ACD) if you’re in a life or death situation. Most people have thought about what they’d want if they became unable to speak for themselves and vouch for their own medical care. If you reach a point where you’re hospitalized or aren’t able to communicate your wishes, an ACD can help direct doctors, hospital staff, and your family. Not only is this practical, it also helps alleviate the emotional stress that your family members may be experiencing while trying to make medical decisions for you during a traumatic period of time.
Don’t forget life insurance
Term life insurance can be an important part of your end-of-life planning — especially when you’re young. Individuals in their 20s, 30s, and 40s likely have partners, children or parents who rely on their income in some way.
In exchange for an (often) affordable monthly premium, a life insurance company pays out a guaranteed amount of money to your loved ones. For example, a healthy 35-year-old mom of two could buy a 20-year, $750,000 Haven Term policy, issued by MassMutual, for about $26 per month. This money can be used by your loved ones to help with bills like the rent or mortgage, childcare, shared debts and many other day-to-day expenses. Your life insurance policy is their safety net.
You might be offered a small life insurance policy through your employer, but you should be aware that it’s often not enough coverage if you have financial dependents. Most group term life insurance policies only cover one to two times your annual salary when really most parents, for example, need at least five to 10 times their annual salary. When determining how much coverage you need, consider:
- How many kids you have
- The cost of college education for your child(ren)
- The cost of future life events for your children – like weddings
- The amount of debt that needs to be paid off
- The cost of part or full-time childcare
- The amount it would take to allow your spouse the option of staying home with your kids in the event that you pass away
These are just a few things that your life insurance could potentially be used to help pay for if you died. Finding a policy that meets your needs, takes care of your family, and fits into your financial plans is key. Don’t be afraid to shop around! Check out multiple policies and get a few different quotes before locking something in.
Don’t forget your digital assets
The big thing that people tend to miss when creating an end-of-life plan is deciding what they want to do with their digital assets. In today’s world, many people in their 20’s and 30’s are entrepreneurial. They own businesses, run successful side hustles, or freelance. They also run active social media and internet presences. But very few of them have decided what they want to happen to their business, their social media profiles, or even their email. It’s wise to include someone in your will who has been entrusted with your passwords and knows what you want to do if you pass away. If you’re a business owner, you may want to talk to your attorney about creating a continuity plan so that your customers or clients are well taken care of if the unthinkable happens.
Make your end-of-life plan legal
As you start to put together your end-of-life plan, it’s smart to work with an attorney to make sure you’ve set up your documents correctly. You don’t want to spend time creating directives for how you want your assets divided and dependents cared for – only to have them not honored because things weren’t finalized. It’s tempting to DIY this portion of your personal finances, but spending the money to work with an attorney or to complete your documents through a service like Trust and Will or Willing is money well spent.
Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more. Opinions are her own.
Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your tax, legal, and investment advisors before engaging in any transaction. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.