(Source: WealthManagement) By Jamil Daoud
Invest time with young, first-time clients.
Attorneys need to inform younger clients and their parents of the importance of estate-planning documents and the default rules that may apply if they don’t have the proper documents in place.
Contrary to popular opinion, many young people are quite conscientious about money-management issues. Based in large measure on the amount of student debt they carry, they’re often budget conscious and spend their money wisely to avoid incurring additional consumer debt.
It’s not surprising that they may delay their first home purchase or even marriage, wanting to maintain financial flexibility. Combine that with the typical youthful feeling of immortality, plus the assumption that estate planning is just for older people or the belief that their balance sheet is all debt, and they may not see the need for planning for what they view as a faraway future. They’re not alone—a recent survey by Caring.com quoted in USA Today revealed that 78 percent of Americans under the age of 36 don’t have a will or trust in place.
It’s up to us to help them progress beyond these attitudes.
Reality often sets in when they marry, buy their first home or begin to have children. For those who don’t have a consistent savings program, the advice their parents gave them years before about the importance of saving early and regularly begins to make more sense.
What we stress in our conversations is that there’s some urgency, and that the estate-planning process gives them a necessary voice in what happens if they’re incapacitated or pass away earlier than they’d expected. As a millennial attorney myself, I’ve already seen acquaintances and friends die or become disabled at an early age, and it’s helped me relate to young clients for whom this is nearly inconceivable.
Planning for the Unforeseen
Once millennials understand how important it is for them to take control of their future, we can begin to plan for the unforeseen as well as the expected:
- Incapacitation: No one expects to be incapacitated, but there are several documents they need. The first is a durable power of attorney (POA) that identifies who will make financial decisions on their behalf if they’re unable to do so. The second is a health care advance directive (including a living will) that outlines their preferences for medical care if they’re unable to state these for themselves.
- Death documents: These include a last will and testament and the establishment of a trust (either revocable or testamentary).
- Beneficiary designations: For younger people, life insurance and 401(k) programs may comprise the bulk of their assets, so it’s important that they keep their beneficiary designations up to date.
We encourage parents to have a durable POA and health care advance directive for all their children once they reach the age of 18. Often, the parents will be designated initially, but the children can designate whomever they wish.
I mentioned default rules earlier. For issues that are covered by durable POAs and health care advance directives, the default for a minor is that a parent or parents make decisions on behalf of the incapacitated child. In the event of incapacitation of a child past the age of 18, it would be necessary for parents to get a court order to appoint them guardians if these documents weren’t in place.
In many states, if unmarried individuals with no children die without a will, regardless of their age, the estate reverts to parents. Of course, if the individual is survived by a spouse, the estate goes to the spouse. No state allows similar treatment for a partner or significant other in the absence of a will (except in rare circumstances in which a common law marriage has been established), but all states spell out what the default is for where the assets will go.
If the unmarried individual without a spouse or children wants to select siblings or a significant other rather than parents, he should specify that choice in the appropriate documents.
The selection of an executor or personal representative is a decision that the millennial should make when the will is drafted. It’s generally not preferable to rely on the preferences set forth in the state’s laws.
Many of my younger clients are surprised at the number of assets they actually have. It’s likely they’ve focused only on their balance sheet, particularly if they’re carrying a heavy load of student debt, so it’s important for us to discuss what their assets include.
Assets that need to be addressed include:
- Retirement accounts: If they’ve participated in accounts with more than one employer and left assets in them, we need to identify them and confirm the beneficiary designations.
- Life insurance policies: This includes personally owned policies as well as policies purchased by or through an employer.
- Real estate, vehicles, boats, jewelry, electronics and home furnishings: This can be a surprisingly valuable asset group, even for the young.
- Family memorabilia: These are often quite important items, although they may not have a high degree of monetary value.
- Pets: Particularly in the case of clients with no children, specifying care for pets is important. A very small window exists after death or incapacitation to take care of a dependent pet.
- Digital assets: This is an area of growing importance. Younger individuals may not want to have their aging parents manage these, and instead opt for someone more tech savvy. In any event, the estate-planning documents should address digital assets, and a complete list of accounts and passwords should be readily available.
Many of us overlook photographs when we think of digital assets, but the photographs stored on our phones and laptops may not exist anywhere else.
Most people have a number of social media accounts, and they may deal with legacy access in different ways. Facebook, for example, prompts users to specify legacy access—an approach other platforms are adopting. Another issue to consider is whether the accounts should be terminated at the time of death, or if a spouse or sibling will want to continue to post, at least for a certain period of time.
Develop Long-Term Relationship
Estate planning can be a relatively painless process, and, surprisingly, one that younger people are quite amenable to when they understand it. We encourage all our clients to view it as a series of multiyear plans, which we will update on a periodic basis, with the time frame dictated by their age.
My approach is to develop what will be a long-term relationship, couch the process in terms they will grasp and make it as easy as possible for them. We’ve created tools that include updatable balance sheets and a digital-asset inventory form that outlines the type of account, how to access it, what the passwords are, and any other relevant information.
Investing our time with young, first-time clients can make a major difference in their futures. I believe that’s a great legacy for any estate-planning attorney.