Understanding the Importance of Estate Planning
Estate planning might sound like something only older or wealthy people need to consider, but it’s essential for everyone, including Millennials. It allows you to manage and protect your assets in the event of your death or if you become unable to make decisions for yourself. Estate planning involves creating legal documents like wills, trusts, and powers of attorney.
The main purpose of estate planning is to ensure that your assets go to the people or causes you care about according to your wishes. This process can significantly reduce stress and confusion for your loved ones during a difficult time. It also allows you to specify who should manage your finances, healthcare, and care for your dependents if you can’t do so yourself.
With an estate plan, you can also avoid unnecessary taxes, keeping more of your hard-earned money in the hands of your loved ones. Crucially, estate planning is best when it’s started early. Not only do you get to enjoy the peace of mind that comes from knowing you have a strategy in place, but it becomes easier to adapt to suit changing life circumstances over time.
U.S. Estate Planning Statistics
The latest data from Caring.com’s Wills and Estate Planning Survey includes insightful statistics about the current state of estate planning in America. The survey reveals a concerning trend: while the majority of Americans recognize the importance of having a will, a far smaller percentage actually have one. Consider the following:
- Although 64 percent of Americans acknowledge the importance of having a will, only 32 percent currently have one. This is the lowest rate recorded since 2020.
- Even so, more than one in three Americans (36 percent) now believe you should have a will by age 35, which is a 12 percent increase compared to the figures in 2022.
- From 2023 to 2024, there was a six percent decrease in the number of Americans with estate plans, with a notable 16 percent decline among lower-income individuals.
- More than 40 percent of Americans without a will stated they plan to create one only if they face a health crisis.
- Forty percent of people who don’t have a will say it’s because they believe they don’t have enough assets to leave anyone, an increase of 21 percent since 2022.
- Lower-income Americans are twice as likely to cite a lack of sufficient assets as a reason for not having a will compared to those in the highest income group.
- About 35 percent of individuals who feel they don’t have enough assets to warrant having a will still have children under 18.
- Between 2020 and 2024, the prevalence of wills among middle-aged and older adults fell by seven percent and 10 percent, respectively.
- The number of young adults aged 18 to 34 who have a will increased by 50 percent from 2020 to 2024, increasing from 16 to 24 percent.
- Among Millennials, key motivations for creating wills in the past three years include the impact of COVID-19, increased assets, and expanded family responsibilities.
Trends in Estate Planning for Millennials
Millennials are increasingly interested in estate planning, reflecting significant shifts in their attitudes toward life’s uncertainties and responsibilities. Recent statistics indicate that more Millennials have started to prioritize organizing their estate affairs, especially in the wake of the COVID-19 pandemic. This generation, often stereotyped for delaying traditional milestones like marriage and homeownership, is actively planning for the future, the well-being of their dependents, and the causes they care about.
The data reveal a rise in the drafting of estate planning documents among Millennials and highlight their preferences and motivations. Here’s a closer look at the trends in estate planning among Millennials:
- Since 2019, the number of Millennials with a will has surged by more than 50 percent, driven in part by the global impact of the COVID-19 pandemic.
- In 2020 and 2021, about one-third of Millennials who created their first estate plan cited the COVID-19 pandemic as the primary motivation.
- A recent study found that 78 percent of Millennials who have engaged in estate planning set up a will in 2020, with 17 percent explicitly mentioning the pandemic as their reason for doing so.
- The primary trigger for many Millennials to create an estate plan was the birth of a child, with 38 percent acknowledging this life event as their motivation. As of 2018, roughly 19 million Millennial women (55 percent) had given birth to children.
- An astounding 78 percent of Millennial pet owners who drafted estate planning documents in 2020 made provisions for the guardianship of their pets in the event of their passing. Millennials recently surpassed Baby Boomers as the biggest pet-owning cohort in the U.S., with more than half reportedly owning dogs.
- Philanthropy also plays a key role in Millennial estate planning, with popular choices for charitable bequests including St. Jude’s Children Research Hospital, Planned Parenthood, and the ASPCA.
- Regarding end-of-life preferences, 26 percent of Millennials who drafted estate planning documents in 2020 expressed a desire to donate their organs, and 47 percent prefer cremation over traditional burial methods. Thirty-five percent favored a celebration of life ceremony, reflecting a preference for more personal and less formal memorial services.
Debunking Estate Planning Myths
Many myths surround estate planning, often discouraging people from undertaking this important process. Many believe that it is only for the elderly or the wealthy, but this is not the case. Below are some common myths and misassumptions about estate planning, as well as the truths that dispel them.
Myth 1: Only Rich People Need Estate Plans.
Many people think you need lots of money or assets to justify an estate plan. However, estate planning is beneficial for anyone who wants to control what happens to their assets, no matter their size. It allows you to distribute your possessions according to your wishes and can simplify the process of closing your estate for your loved ones. It also enables you to document your preferences for the care of your dependents if you die or become incapacitated.
Myth 2: I’m Too Young for Estate Planning.
Another common misconception is that estate planning is only for older adults. But accidents and illnesses can happen at any age. Young adults, especially those who own property or have children, need estate plans to ensure their affairs are in order if something unexpected happens.
Myth 3: A Will Is Enough for My Estate Planning Needs.
While a will is a big part of an estate plan, it does not cover everything. Estate plans can also include legal tools like health care directives, powers of attorney, and trusts, which provide additional instructions and protections that a will does not address on its own.
Myth 4: Estate Planning Is Too Expensive.
The cost of not having an estate plan is often much higher than the cost of creating one. Without an estate plan, your loved ones might face higher legal fees and taxes, and the process of distributing your assets can become significantly more complicated and time-consuming.
Myth 5: Once I Create an Estate Plan, I Can Forget About It.
Estate plans need updates as your life circumstances change. It’s best to review and modify your estate plan alongside life events like marriage, divorce, the birth of children, or the acquisition of new assets. You should also re-evaluate your plan at least once every three years, even if no significant life changes have occurred. Regularly reviewing and updating your estate plan ensures it always reflects your current situation and wishes.
Myth 6: My Family Knows My Wishes, So I Don’t Need To Write Them Out.
Relying on family members to carry out your wishes without specific legal instructions is risky. Misunderstandings and disputes can easily arise. A clear, legal document outlining your desires can prevent conflicts and ensure your loved ones honor your wishes.
Myth 7: If I Die Without a Will, My Spouse Will Automatically Get Everything.
This is not always true. If you die intestate (that is, without a will), the distribution of your assets will depend on state laws, which might dictate a different division of assets. This could mean part of your estate going to other relatives, such as your parents or siblings.
Myth 8: Online Templates Are Good Enough for Creating an Estate Plan.
Online templates provide one-size-fits-all solutions that might not suit everyone’s unique needs. Consulting a legal professional is the best way to ensure your estate plan considers all of your circumstances and addresses them thoroughly and unambiguously.
How Does Estate Planning Help Millennials?
Estate planning offers significant benefits, such as control over assets and personal affairs, regardless of what the future holds. By planning their estates early, Millennials can determine precisely who inherits their possessions, from financial assets to personal keepsakes. This process reduces uncertainties and can prevent conflicts among loved ones.
Moreover, estate planning allows Millennials to make critical decisions about their health, finances, and care for dependents in case they become unable to manage these matters themselves. By appointing trusted individuals to oversee these responsibilities, Millennials can achieve peace of mind, knowing their affairs are in order and their future intentions are clear.
What Is the Best Age to Start Estate Planning?
The best time to start an estate plan is well before you need it. Ideally, you should start estate planning as soon as you become a legal adult. Once you reach adulthood, you have the legal right to decide what happens to your assets and who can make decisions on your behalf in case of incapacity. Starting early is wise because life is unpredictable, and having a plan ensures your loved ones know your wishes and can follow them no matter what happens.
As Millennials begin to acquire major assets, take on responsibilities like mortgages, and start families, having a clear estate plan becomes increasingly important. Early planning creates a valuable safety net and simplifies future updates as circumstances change.
What Documents Should Millennials Prepare?
Millennials should prepare several key estate planning documents to ensure their assets and health decisions are handled according to their wishes. Together, the following documents form a comprehensive estate plan that protects your interests and supports your loved ones.
Last Will and Testament
A last will and testament, also known simply as a will, is a fundamental estate planning document. It serves as the foundation for managing your estate after you pass away. In your will, you clearly state who will inherit your assets, such as money, real estate, and personal items.
Beyond asset distribution, a will allows you to specify guardianship designations. This is essential if you have children because it allows you to decide who will care for them if something happens to you, rather than leaving this decision to the courts.
If you have important online accounts or own digital assets like cryptocurrency, you can also include digital asset management instructions in your will. If you’re like many people in your age bracket, it’s crucial to outline what should happen to your online accounts and properties, such as social media, online banking, and even digital photos.
By setting up a will, you ensure that your directives are carried out and that others understand your needs and wishes in the event of your passing. This makes it easier for your loved ones to respect your preferences and handle your responsibilities once you’re gone.
Trusts
A trust is a legal instrument by which you, as trustor, appoint a trustee to manage certain assets on behalf of your chosen beneficiaries. Trusts provide many different benefits, including protecting your assets and ensuring they are distributed according to your specific instructions. They also allow your loved ones to bypass the lengthy and public probate process where those assets are concerned. Trusts offer significant tax advantages and greater control over when and how your assets go to your beneficiaries. There are many different types of trusts, each designed to serve various needs and goals. Let’s explore some of the most common in greater detail.
Revocable Trusts
A revocable trust is a flexible estate planning tool that you can alter or cancel at any time during your life. When you create a revocable trust, you transfer ownership of your assets to the trust but can maintain control over them, as you can appoint yourself a trustee. As such, they also remain part of your estate, unlike certain other types of trust. A revocable trust allows you to manage the assets while you are alive and specify how the trust’s assets get distributed to your beneficiaries after your death. Because you can modify or dissolve a revocable trust at any time, it provides a way to manage your estate and plan for future changes in your circumstances.
Irrevocable Trusts
An irrevocable trust is a type of trust that you cannot alter or terminate without permission from your beneficiaries once you create it. When you transfer assets into an irrevocable trust, you effectively remove your legal ownership of those assets. The benefits of this setup include a reduction in estate taxes and protection of assets from creditors and legal judgments. Irrevocable trusts are often used to preserve wealth for future generations and are also beneficial for charitable estate planning.
Living Trusts
A living trust, also known as an inter vivos trust, is a type of revocable trust you create during your lifetime to manage assets before and after death. You can choose to serve as your own trustee, managing the trust’s assets yourself, or appoint someone else to do it. A living trust can be either revocable or irrevocable, providing flexibility or stability to suit your needs. It allows your loved ones to avoid probate, which can save time and money and increase the privacy of your estate.
Special Needs Trusts
A special needs trust is designed to benefit someone who has a disability without jeopardizing their eligibility for public assistance such as Medicaid or Supplemental Security Income (SSI). These public programs have asset limits that disqualify people from claiming benefits if they have too much wealth. Assets in a special needs trust do not count toward these asset limits, provided the trust is structured correctly. Special needs trusts can pay for expenses that enhance the beneficiary’s quality of life, while public benefits cover their basic needs.
Charitable Trusts
A charitable trust is one that benefits a charitable organization or cause. There are two main types: a charitable lead trust and a charitable remainder trust. The former provides the charity with income for a specified period, after which the remainder of the trust reverts to other designated beneficiaries. The latter allows you to receive income from the trust during your lifetime or a set term, with the remaining assets going to your selected charity. Both types offer tax benefits and fulfill philanthropic goals.
Spendthrift Trusts
A spendthrift trust is designed to protect a beneficiary’s inheritance from their own potentially poor spending habits or their creditors. The trustee controls how spendthrift trust funds are distributed, and creditors cannot claim the assets set aside for the beneficiary within the trust. This type of trust is ideal for beneficiaries who might not be financially responsible or are susceptible to external claims.
Pet Trusts
A pet trust provides for the care and maintenance of one or more pets in the event of your incapacity or death. It allows you to set aside funds for your pets and provide detailed instructions on caring for them. A pet trust also typically specifies a caregiver and ensures they have the means to provide for your pets according to your wishes.
Powers of Attorney
A power of attorney is a legal document that grants someone else (your agent) the authority to make decisions on your behalf. These documents are useful if you cannot make decisions for yourself due to illness or incapacity. Powers of attorney come in different forms, each designed to suit specific needs and circumstances.
For instance, a durable power of attorney remains effective even if you become incapacitated, allowing your chosen agent to manage your affairs without needing court intervention. A springing power of attorney becomes effective only under circumstances that you specify, such as if you become incapacitated. A general power of attorney grants broad powers to your agent, from handling financial matters to making business decisions. This type of power of attorney is useful if you need someone to handle your affairs during times when you are not incapacitated, such as when traveling abroad. Most powers of attorney grant agents authority over either healthcare or financial decisions.
Healthcare Power of Attorney
A healthcare power of attorney allows you to appoint someone to make medical decisions on your behalf if you can no longer do so. This person, often called a healthcare proxy, will work with doctors and other health professionals to ensure you receive the type of care you wish. This document provides clarity and direction during stressful times, ensuring others respect your healthcare preferences, such as whether to administer life-sustaining treatments or perform specific medical procedures.
Financial Power of Attorney
A financial power of attorney lets you designate someone to handle your financial affairs. This can include paying your bills, managing your investments, or making other monetary decisions. The agent you choose will be able to manage your finances according to your instructions. This arrangement is particularly useful if you become incapacitated or are out of the country and need someone to keep your finances in order. Without a financial power of attorney, your family might have to go through court to get the authority to handle your finances, which can be time-consuming and costly.
Business Succession Plans
If you own a business, you should include a business succession plan as part of your estate plan. This type of plan outlines who will take over the business if you can no longer manage it due to incapacity, retirement, or death. Creating a business succession plan ensures that your hard work continues and your business can operate smoothly without disruption.
A well-crafted succession plan should specify your preferences for the future leadership of your business and the process for transferring ownership. Clearly defining roles and expectations can prevent potential conflicts among family members, partners, or key employees. A business succession plan protects your business’s future and secures the livelihoods of those who depend on it. By setting up a succession plan for your business, you provide a clear path for its future progress, giving you peace of mind that your professional legacy will continue according to your wishes.
Letters of Intent
A letter of intent is a document you prepare to provide more personal guidance and explanations about your estate plan. While not legally binding, this document can detail your wishes regarding the distribution of personal items, your thoughts on guardianship for your children, or instructions for your funeral. A letter of intent can guide your loved ones and the executor of your estate, making the management of your affairs clearer and more straightforward.
Beneficiary Designations
Beneficiary designations aren’t standalone documents like wills or trusts. Instead, they are specific instructions you include in various financial accounts or policies, such as retirement accounts, life insurance policies, and investment portfolios. These designations directly specify who should inherit these assets upon your death. It’s a good idea to regularly review and update these designations as necessary to ensure they align with your current estate planning goals and life circumstances. By clearly designating your beneficiaries, you ensure that your assets transfer directly to them, bypassing the lengthy and expensive probate process.
How Much Does an Estate Plan Cost?
The cost of an estate plan can vary widely based on several factors, including the complexity of your assets, the specific documents you need, and the attorney you choose to work with. For basic estate planning, such as drafting a will, powers of attorney, and a living trust, fees usually start at a few hundred dollars. If your situation requires more complex planning, such as setting up more complex trusts or dealing with larger estates, the costs can increase significantly, potentially ranging from one to several thousand dollars.
Many attorneys offer flat rates for standard estate planning packages, while others might charge by the hour, particularly for more complicated situations. It’s a good idea to shop around and discuss pricing and services with several attorneys to find the best fit for your needs and budget. Remember, investing in a well-drafted estate plan now can save you and your family time, money, and stress in the future.
How an Attorney Can Help With Your Estate Plan
Working with an experienced lawyer is a great way to enhance the effectiveness and comprehensiveness of your estate plan. A knowledgeable attorney understands the nuances of estate law and can craft your plan to meet the relevant legal requirements and fully address your personal wishes and needs. Here’s how an experienced lawyer can develop a robust estate plan on your behalf:
- Conducting a Comprehensive Review of Your Circumstances: Your attorney can thoroughly review your financial situation, family needs, and future goals to advise you on the instruments you’ll need to meet your needs, then tailor your estate plan to your unique circumstances.
- Educating You on Estate Planning Options: A lawyer can explain all available estate planning tools and strategies to help you make informed decisions about which options best meet your needs.
- Explaining Tax Implications: A lawyer can offer professional advice on how state and federal laws might affect your estate and what you can do to mitigate those impacts for your heirs.
- Identifying Risks and Solutions: Your lawyer can identify potential risks that could affect your estate and suggest strategies to address these issues, such as setting up specific types of trusts or designations.
- Facilitating Family Discussions: Estate planning attorneys can facilitate discussions among family members about your estate plan to clarify your intentions, reduce potential conflicts, and promote understanding.
- Coordinating with Financial Advisors: Your lawyer can work closely with your financial advisors to ensure that your estate plan and financial plan are in alignment, which is essential for comprehensive asset management.
- Drafting Enforceable Documents: Lawyers ensure your various estate planning documents are correctly completed, signed, notarized, and filed as necessary.
- Offering Continual Legal Support: Your attorney can provide ongoing support and advice to adapt your estate plan as laws change or new legal issues arise.
- Preparing for Future Updates: Your estate planning attorney can prepare your estate plan with future flexibility in mind, making it easier to update your plan as your life changes without extensive overhauls.
Contact OC Wills & Trust Attorneys Today
Are you a Millennial who’s thinking about taking the big step to securing your future through effective estate planning? Reach out to OC Wills & Trust Attorneys for a free initial consultation. We help younger adults like you develop tailored estate plans that match your lifestyle and aspirations. Take action today to safeguard your assets and care for your loved ones.
