I spent the past two years as a paralegal in the Trusts and Estates Group at Mintz Levin, a Boston law firm. I realized the estate planning process is complex, but I also felt it is something more young professionals should think about. Before you can begin planning, it is important to understand the basics of what an estate plan is and what it accomplishes.
What is an estate plan?
An “estate” consists of all the property a person owns, including real estate, cars, cash, business interests, and other assets. Knowing this, an “estate plan” is a collection of documents that protects your assets and personal property (your estate) and explains how you want them distributed upon your death. Your plan will also outline how you want your healthcare and financial decisions handled if you are unable to do so for yourself.
A common misconception is that a will and an estate plan are the same thing, they’re not. A core estate plan generally consists of five key documents – a Will, Revocable Trust, Living Will, Health Care Proxy, and Durable Power of Attorney. It is a good idea to create your estate plan and update it throughout your lifetime as your situation changes.
What documents should I consider?
Last Will. Your Will names an executor (or personal representative) to administer your estate after you die. It is the executor’s job to handle assets, distribute them to your beneficiaries, and file documents with the courts, financial institutions, etc. If you have children under the legal age (18) you would also name a guardian who would be responsible for your children should you pass while they are still minors. If you decide not to create a Revocable Trust, your Will can outline how your estate should be distributed at your death.
Revocable Trust. The Revocable Trust controls how you want your assets distributed at your death. Assets held in trust are much easier for your executor and trustees to manage and access – this simplifies the process of distributing your assets to your beneficiaries. Additionally, having a trust could eliminate the need to probate the estate and can reduce or eliminate taxes. If you opt not to create a trust, you can determine the distribution of your assets in your Will.
Living Will. Under this document you can express your preferences regarding life prolonging procedures relating to illness and catastrophic events. It usually serves as a guidance for your health care agent, family members, and physicians (not everyone opts to create a Living Will).
Health Care Proxy. The Health Care Proxy names a health care agent who will have the authority to make health care decisions on your behalf if you are unable to do so yourself. You could also specify your preference relating to burial versus cremation, organ donation, etc.
Durable Power of Attorney. The Durable Power of Attorney names an agent to handle your financial matters if you are unable to do so yourself. This document can become effective immediately or only if you are determined to be incapacitated.
What will my estate plan accomplish?
Now that you have a general understanding of what a core estate plan consists of, it is relevant to know why you should want one. Your core documents will work together at your death to ensure your wishes are properly carried out. From a personal standpoint, your estate plan can ensure your family is taken care of, help ease the process of an emotional time for family members and can minimize family conflict. Financially, your assets and beneficiaries will be protected (from creditors, etc.), taxes can be minimized, and you can help reduce additional fees associated with administering an estate (i.e., probates, legal fees, etc.).
Now what?
Regardless of your financial situation, it is never too soon to begin planning for your future. As a young professional, you may be early in your career, single, or not have many assets yet. If this is the case for you, the main message I want to get across is that it is something you should be thinking about and have in the back of your mind. It is important to communicate with your family about your wishes (and their wishes!), compile your asset information in one place, and make sure you are up to date with the beneficiary information on your various accounts. It is never too soon to be prepared for the unexpected.
* Disclaimer: I am not an attorney, and this is not legal advice. This is based on my experiences and research having spent two years working in trusts and estates. *