Tackling Estate Planning, as a Young Couple - Werner Law Firm
Tackling the Estate Planning Process as a Young Couple - Werner Law Firm

Tackling the Estate Planning Process as a Young Couple

In the mind of most, estate planning is relegated to those approaching or within retirement age, with the financial health needed to think about wealth management, asset allocation, and eventual inheritance issues. However, there’s really more to estate planning than meets the eye – and the argument can be made that young couples should think about investing in estate planning tools just as much as their older counterparts, for different as well as many of the same reasons.

It cannot be denied that estate planning is far from a priority for most Americans. Only an estimated third of Americans with young children even have a will, let alone more complex estate plans. Yet contrary to popular belief, many Americans stand to benefit from even just a simple or rudimentary set of estate planning measures, given that they’re ready to work through the issues at hand with a professional.

In order to start benefiting from estate planning as a young couple, it’s important to know what an estate plan can do for you.

Understanding Estate Planning

An estate plan is a series of documents outlining your wishes in regard to how your property should be controlled and distributed after death. An estate plan can also be used to outline how you wish to be treated in the case of certain medical conditions, who doctors and creditors should answer to should you be found incapacitated yet alive, and who should take care of your young children should you pass away before they become adults.

More than just a way to settle inheritance issues and avoid massive estate taxes, estate plans are designed to be simple documents that, in most cases, allow individuals with a modest income and a few assets to determine who gets what, and who makes what decisions, should they pass away.

While estate plans are stereotypically the tools of the wealthy, it’s important to note that young couples – especially those with an interest in starting a family, or those with young children at home – have an interest in clearly stating how they would like their property to be distributed after death, just as they should take the time to determine who should take care of their children, and who should make critical financial and health care decisions for them in moments of incapacity.

It’s difficult to face your own mortality, and much more so when still young. And it’s understandable that the very last thing any young couple or newlywed couple wants to do is think about how one or the other could die, and how that might affect their life. Yet it’s critical to prepare it either way.

Without a will or estate plan in place, a person’s belongings go through a probate process according to the state’s laws on intestacy.

This essentially requires the state to determine who gets what, based on a rigid ruleset that divides all of the deceased’s assets between the spouse and children, or any other next of kin. Partners, fiancés, stepchildren, and other individuals without clear legal or blood relation likely will not receive anything, often not accurately reflecting the wishes of the decedent.

Not Just the Wealthy

While estate planning tools do exist to help the very wealthy largely reduce the tax impact of inheritance and cut down on the length and expense of the mandatory probate process, plenty of estate planning tools are just as effective in helping families make critical decisions about how they want their belongings to be distributed after death, and how they want their children to be cared for.

Other reasons to consider an estate plan include probate in California. While the California probate process is not the longest or most expensive in the country, it can still be tremendously tedious without proper preparation and the know-how to work towards an expedited process.

Many also underestimate the financial impact of becoming mentally incapacitated without a proper plan in place. Without the documents needed to instate a trusted individual as your representative with power of attorney privileges, becoming temporarily incapacitated can turn into a nightmare scenario in the long-term.

For those who do decide to dabble in estate planning, yet do so through free templates and programs, it’s important to note that even the slightest clerical error can have serious ramifications down the line.

What to Do and Not to Do as a Young Couple

The primary goals of an estate plan are to limit the length and cost of probate and grant greater controls over critical life-changing choices, from financial and healthcare choices to choices regarding one’s own children.

For young couples in California seeking to set up their own estate plan, these are all good reasons to start. But it’s important to take note of some basic do’s and don’ts.

Do:

    • Determine who owns what. In California, any property owned before marriage is considered separate property once married, unless otherwise stated in a deed. Property purchased while married is usually community property, which means it automatically passes to the surviving spouse after death. Discuss who owns what, and how you want it to be handled should one of you (or both) pass away.
    • Determine who takes care of the children should you both pass away. Choose competent and trusted guardians and discuss your choice with them. This is to avoid any issues regarding custody should you both pass away.
    • Create trusts to manage all assets and wealth being passed onto minor children. This is to ensure that all assets that are to be bequeathed to your kids get to them at an appropriate time, and that until that time, said assets will be in the hands of a competent trustee. Consider choosing a corporate trustee or someone with a fiduciary responsibility to you and your children, rather than a family member.
    • Consider bestowing power of attorney to your spouse. Spouses do not have the authority to make choices for each other, should one partner be incapacitated. To overwrite this and ensure your loved one can continue to take care of your healthcare decisions and finances should you be incapacitated, prepare power of attorney documents.

Don’t:

    • Use a preset. Preset wills and other estate planning documents do not account for state-only estate planning considerations or other subtle yet necessary details that most laypeople would be unaware of. There is a reason attorneys get to command certain fees for estate planning, and that is because mistakes can cost you much more down the road.
    • Name your underage children as direct beneficiaries to large funds/life insurance. It is not a good idea to bequeath a massive asset or the contents of a large account to a young child, or even to a young adult. If a minor is named a beneficiary, the courts will require that an account is setup for the children to hold the contents of the account in their name until they become of age. A trust can control, manage, and even grow these assets and accounts for your children until they are ready to take financial responsibility.
    • Create your estate plan, then ignore it. Estate plans must adhere to the rule of the law in the day that they are drafted and notarized and must be amended as both laws and circumstances change.
    • Create an estate plan that is far too complex. Some companies and law firms try to oversell, giving clients estate plans that are far too complex and expensive. Most young couples only need a very simple estate plan.

Final Considerations

While California’s probate process can be lengthy, the state does not have any inheritance taxes. Furthermore, estate taxes do not go into effect until a person’s total estate is valued at over $11.4 million per individual in 2019.

While this can (and will) change, any estate plans currently being built should take into consideration that it is unlikely for most individuals to require strenuous estate planning measures to avoid the bulk of the taxes associated with dying and passing on any existing wealth.

However, as mentioned previously, the laws surrounding estate taxes are subject to change, and the tax code is amended several hundred times a year. It’s generally advised for individuals and couples – including young couples – to review and potentially revise an estate plan every year, or whenever an event drastically changes one’s estate planning goals (the birth of a new child, the death of a family member, marriage, divorce, alienation, etc).

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