For a lot of young adults, wills and estate planning does not figure out in their list of to-dos when they are in their 20s or something. But, the fact is, it is important that all people regardless of their age have a proper plan in place for their estates right from the very beginning.
For starters, they usually do not require any sort of complex set of tasks to complete; only a strong understanding of some fundamentals regarding financial planning will suffice, especially about some selected documents.
So, here are some of the crucial documents that would help these young minds jumpstart their financial and estate planning endeavors.
Basic documents of financial planning you must have
When planning your finances, it is important that you get in place the below mentioned key personal finance documents:
• Powers of attorney – These documents provide the authorization to an individual, better known as attorney-in-fact, to discharge all the legal as well as financial liabilities and make the decisions pertaining to the same, on the actual owner’s behalf. Moreover, a power of attorney is considered as a what-if document. Being a young adult, it may seem to be unnecessary from your perspective at this moment. But, it is very important and that you need to think seriously over this issue, nevertheless. This is because these documents provide the assigned person an unlimited access to all the assets of the owner, upon his or her unanticipated incapacity. However, most of the time, a power of attorney becomes effective immediately after signing on the dotted line. The problem starts when the assets end up at wrong hands where they could be misappropriated or misused, or even get stolen. Hence, the key is to name only a trustworthy person as your power of attorney.
• Health Care advance directives – Most of the time people get surprised on learning about the rule that prevent them from taking decisions on medical matters that affect their relatives and friends, unless authorized by the person concerned. These instructions are generally mentioned in advance directives. These documents acts as the authorization letter allowing a named individual to take crucial, life-altering decisions on behalf of the other, especially during medical emergencies when the doctors are at a fix and cannot arrive at a concrete decision. To deal with these issues each state has its own set of laws in place that would govern the process of creating advance directives. You could access some of the sample online forms available for free that have been developed by various states.
• Beneficiary allotments – For a lot of young adults, assets linked to their trade or work like group term life insurance or their retirement accounts like 401(k) plans are some of the most precious assets they would ever have. Assets of these sorts are usually passed on to the beneficiaries of the owner. There are forms provided by the employer to access these assets instead of the will created by the owner. Most of the times, young adults like you are ignorant of these provisions and even if some of them are, then those people are found to be least bothered about filling up the necessary forms to safeguard their assets from future catastrophes. Failing to assign a proper beneficiary would actually make it tough for your immediate family members to access and use the legacy that would leave behind in the event of your sudden demise.
• Prenuptial contracts – A lot of has already been said and discussed regarding prenuptial agreements on various websites and textbooks. However, it is worth another mention here, as a lot of you will marry in your 20s or at least meet your life partners eventually. Financial planners encourage young adults to have a proper prenup in place before exchanging marital vows. This is not only to defend their existing wealth, but also the assets they share that could be divided in case of a divorce. The prenup includes gifts from family and friends, business interests, future inheritances, and so on. Though the list could go on and might overwhelm you in the process, yet all the above mentioned documents barring the prenups are most straightforward in nature and affordable. Moreover, there are some selected documents like advance directives that are free. According to the financial experts, the most suitable time to put these essential documents in place is before you need them. On the contrary, it might be too late to get hold of these documents once you actually need them.
This goes without saying that women should plan their finances well in advance as they are more prone to financial dependency over their husbands. Staying prepared for the worst could help you to avert a larger financial crisis and prevent unnecessary monetary hassles at a later stage in life.