A Guide to Estate Planning for Young Families
Ensure your family is provided for, in your life, and after.
Imagine losing someone you love dearly, but instead of having time to mourn, you must instead figure out how to settle their estate which can be a complicated financial mess that can lead to other issues if not properly. Now imagine you’re the person who passed, would you want to put that burden on the ones you love after your passing? As a young person, estate planning is NOT front of mind. But if you are married, and even more so if you have kids, estate planning is an even higher priority for you as a young family.
We work hard to support our families while we’re here but tomorrow is never guaranteed. Death and taxes however are guaranteed and you should have a plan in place that speaks to both in the event that you or a family member passes away. Not just for your spouse, but your kids, your parents, siblings, or anyone else who is dependent on you or cares for you (relevant to young families and single people alike). The best way to prepare for your inevitable passing is with proper estate planning.
Here are some of the key pieces to consider for a young family looking to secure proper estate planning.
1. A Will
A will is a document stating your final wishes. Three important pieces of the will are:
1. The Executor: Who will manage the distribution and administration of your estate.
2. The Beneficiaries: Who will inherit the assets in your estate.
3. The Guardian: Who will take care of your children.
Dying without a will means the courts decide who inherits your assets AND who will raise your children (i.e. the dreaded “Probate Process”). Chances are you want a say in who that will be, so a will is one of the most crucial pieces of your estate plan to avoid this. Probate can be a very time consuming, stressful, and expensive process to go through but can be avoided with proper estate planning.
Your will can be simple or detailed. You can include things like how you want your final arrangements handled, or just make sure your assets and children are cared for how you prefer.
Your will can include:
A letter of intent (lays out funeral planning, pet care, misc financial and personal notes, a personal message to loved ones, and more)
A memorandum of tangible personal property that you can update throughout your life
Guardianship assignments for kids and pets
Digital asset assignments for things like your computer, cryptocurrency, and any other digital assets
2. Living Will and Durable Power of Attorney
Another part of a successful estate plan is planning for times when you’re alive but cannot make decisions for yourself.
If you’re incapacitated in any way and cannot make healthcare or financial decisions, someone must make those decisions for you. The only legal way to do this is with a living will and power of attorney.
A living will tells healthcare professionals how you want to be treated if you’re unable to make decisions. It could include a “do not resuscitate” order or detail your wishes regarding managing pain and keeping you comfortable.
A durable power of attorney for healthcare appoints a specific person to carry out your healthcare wishes. It also gives them the power to make difficult decisions that might not be included in your living will.
A durable power of attorney for finances gives a specific person access and control of your finances if you’re incapacitated. This can be crucial for a surviving spouse that isn’t listed on the account but needs access to the funds.
3. Life Insurance
A life insurance policy should be a part of any good estate plan. Imagine a spouse who’s never managed the finances suddenly having to take on that responsibility while also mourning the loss of a spouse? Life insurance covers the growing costs of funeral arrangements, helps payoff debts or taxes for the surviving spouse, and provide them with funds to cover bills for a period of time which allows them to properly mourn without that additional stress. Most of all, it gives you peace of mind knowing your family will be taken care of financially when you die.
Life insurance is a tax-free disbursement for your named beneficiaries. You can purchase term life insurance (fixed annual premium, common policies cover 10 years, 20 years, and up to 30 years) or permanent life insurance (lasts for your lifetime). Be wary of “financial advisers” pitching permanent life insurance as an “investment”. These policies are appropriate in certain instances but generally carry much higher fees and earn the “adviser” a fat commission check (these are not “fiduciary advisers”). I generally advise young families to consider lower cost term policies.
Many young families purchase term life insurance to cover their mortgage term, or to provide a payout until their children are 18 years old. Some also include coverage through their children’s college years to ensure their children are covered should they go to college.
Life insurance isn’t required for an estate plan, but it’s a great way to ensure your spouse and children are taken care of should you die unexpectedly.
4. Trusts
Trusts are a more complicated piece of the estate planning puzzle. If you have a large number of assets or want to protect your estate from probate and/or any potential liabilities, setting up a trust can be the right answer.
Trusts are a legally binding document that gives a third party, the trustee, possession of your assets. Your assets may transfer to the trust in your life time (revocable living trust) or immediately upon your death (testamentary trust) in accordance with the original trust instructions created by you (or outlined in your will).
5. Manage Beneficiaries
A key component of any good estate plan is keeping your beneficiaries updated. Any financial account you own should have a beneficiary named including:
Checking or savings accounts
Investment accounts
Retirement accounts
Life insurance policies
Naming a beneficiary takes only a few minutes, but it can save your loved ones a lot of time, stress, and money. When a beneficiary is named, the asset skips probate and go directly to the named person on the account after they receive your death certificate.
6. Updating and/or Amending your Estate Plan
It’s generally wise to create an estate plan earlier in life, earlier the better. Once you’re married the need jumps up significantly, and once you have children the need jumps up significantly more. Anything can happen and without a plan, your loved ones could be left financially strained.
It’s a good idea to revisit your estate plan every 5 years at a minimum. If your life changes in any drastic ways though (have a child, divorce, or greatly increase your net worth), consider changing your estate plan sooner. Make sure everything you own is included in your estate plan because anything that’s not named could go through the probate process.
Final Thoughts
Estate planning might not be something you think about yet if you have a young family, but it’s one of the most important things you can do for your family.
Life is unpredictable. No one knows what could happen, but you can prepare for the worst so your loved ones can handle the tragedy without additional financial burdens. Leaving your assets, caretaker of your children, and other possessions to chance could mean they don’t go to who you would have chosen should you have taken the time for proper estate planning.
Create your estate plan, including a will, named beneficiaries, living will, power of attorneys (healthcare & financial) at the very least to ensure your family is well taken care of upon your passing.
A financial planner will review your estate plan, life insurance, in addition to all the other key areas of your financial life and make referrals to a licensed estate attorney as needed. If ensuring your family’s financial security in the event of an untimely death is important to you... Schedule a free 30 minute introductory call with me here
Together we can explore “you” in a way that’s deeper than dollars and cents, and start a conversation to get you and your partner on the same page financially. I’m here to help you create a vision for your life, then back into the money moves needed to bring that vision to life. You can live for an epic life today, while still being on track for tomorrow.
Jonathan Grannick, CFP®
Wonder Wealth LLC
San Diego Financial Advisor | Fee-only Fiduciary
Disclosure:
None of the information provided is intended as investment, tax, accounting, mental health, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Wonder Wealth LLC does not promise or guarantee any income or particular result from your use of the information contained herein.