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2 Estate-Planning Documents Millennials Need

March 3, 2016
Estate Planning, Investing, Personal Finance
2 Estate-Planning Documents Millennials Need
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By Rachel Podnos, JD, CFP

Learn more about Rachel on NerdWallet’s Ask an Advisor

Ask yourself this: If I got into a car accident tomorrow and became incapacitated, who would make medical decisions on my behalf?

Do you know if that person’s decisions would be in line with your wishes? Do you know who would pay your bills? If these questions concern you — and they should — it’s time to start thinking about some basic estate planning, even if you don’t have a spouse or children or a substantial amount of wealth to pass on.

That’s right; even young, single people need to do some estate planning. The good news is that you don’t need an elaborate, complex plan at this point. You can set up a plan for your medical and financial affairs by executing two simple documents — an advance health-care directive and a durable power of attorney — and you can do it in less than 30 minutes.

Advance health care directive

An advance health care directive comprises a living will and a health care proxy.

  • A living will lays out your wishes for your medical care, should you become incapacitated. It covers topics such as whether you want your life to be artificially prolonged if you are in a vegetative state or have a terminal condition.
  • A health care proxy allows you to name someone who will have the legal authority to make health care decisions for you in this situation. Give this a lot of thought — it’s a big job for the person you choose.

Why is it so important to do this? Every state has different laws regarding who can make medical decisions on your behalf if you become incapacitated. In most cases, health care providers turn to your next of kin to make decisions for you, and there are no legal issues.

However, what if your family members disagree? The infamous case of Terri Schiavo — who remained in a persistent vegetative state for years while her family fought over what to do — is a sad example of the worst-case scenario when someone becomes incapacitated without an advance health care directive. Having this document is good for you because it ensures that your preferences for your medical care are put into writing and known in advance. It’s good for your family because it removes a lot of the guesswork and potential for family conflict over your care.

Durable power of attorney

A durable power of attorney is a legal document you can use to designate a person to handle financial transactions on your behalf. While some powers of attorney are used for single transactions, a durable power of attorney gives the designated person the power to essentially step into your shoes and act “as you” in handling all of your financial affairs if you become incapacitated. Don’t let the name deceive you — the person you choose does not have to be an attorney. Most people choose their most trusted friend or family member.

If you become temporarily incapacitated, you’ll want someone to be able to pay your mortgage, deposit checks, file your tax return and take care of other financial obligations for you so you won’t be facing financial disaster when you recover.

In the unfortunate case that your incapacitation is permanent, it will be much easier on your family and friends if you’ve designated someone ahead of time to handle your financial affairs. As with the advance health care directive, having a durable power of attorney in place for your financial affairs is good for both you and your loved ones.

You can find forms for these documents online for free. You don’t need to consult with an attorney, but it can’t hurt if you want to be thorough. For the advance health care directive, be sure to use a form that applies to the state where you live; you can search for “advance health care directive form” and your state’s name to find the right one. Durable power of attorney forms don’t differ from state to state.

With both forms, be sure to follow the instructions to the letter; otherwise, they may not have legal authority. Once you have executed them, keep both digital and hard copies for yourself in a place where they can be easily found. Then, give copies to the people you designate as your health care proxy and attorney-in-fact, your primary-care physician and any other friends or family members you think should be involved.

Good start

As you probably know, these two estate-planning documents don’t constitute a complete estate plan. However, if you are young and single and don’t have significant assets, you may not need a will. It certainly couldn’t hurt, though, and if you want to be thorough, you can draw up a simple will online for around $60.

For many young professionals, the bulk of their financial assets are in retirement accounts, which generally don’t pass by will. These assets are transferred automatically at your death to the beneficiary you have listed on the account, so make sure that information is up to date. Doing so can add another important element to your starter estate plan.

Taking these simple steps today will give you a good start on estate planning and can help make it easier on your loved ones if something happens to you. Of course, if you have more complicated estate-planning needs, you should consult an attorney.

Rachel Podnos is a fee-only financial planner with Wealth Care LLC

This article also appears on Nasdaq.

Image via iStock.