It’s easy to overlook the importance of estate planning. After all, most of us don’t enjoy thinking about what should happen after we are gone. But the benefits of estate planning can set up a bright financial future for your family, even if you aren’t around to provide for them.
Today, we’ll take a closer look at the importance of estate planning and having a will in your 30s. Plus, how to create a will and a trust!
Understanding the importance of estate planning and benefits of a will
Estate planning is a financial task that many choose to skip for many years. In fact, a recent survey found that 2 out of 3 American adults do not have an estate plan.
The number of adults that have a will or trust typically increases with age. But it is important to set up an estate plan as early as possible.
Your 30s are also an especially important time in life for estate planning. And this is because this is the decade where you are likely to experience many life transitions and take on new responsibilities.
From marriage to parenthood, to your first home to taking care of elderly parents - your 30s are a busy decade.
That being said, let's delve into why estate planning is essential, especially in your 30s.
Protect the financial future of your loved ones
The number one reason to set up a will or living trust is to protect the financial future of your loved ones. Although it can be difficult to think about the possibility of not being around for your family, setting up a will or living trust can ensure they will always be taken care of.
Remember, trusts are not just for trust fund babies or the super-wealthy. A trust can set up a stable financial future for your family whether or not you have extreme wealth.
An estate plan is the most effective way to build multigenerational wealth for your family.
Reduce estate taxes
Paying taxes is an activity that most of us don’t enjoy. If you’ve ever filed your own taxes, then you understand the detailed paperwork that can make anyone bored. Plus, the act of giving up your hard-earned money can be a challenge.
But without a will or living trust in place, your estate may pay more in federal and state inheritance taxes than is necessary. Luckily, proper estate planning can help to minimize the tax burden facing your heirs.
Avoid probate court
Once you understand the probate process, you will understand the importance of estate planning. Probate is a process conducted by the court to gather your assets, settle your debts, and distribute your assets after your death.
Without a will or trust in place, your loved ones could be forced to sit through a lengthy probate process before taking ownership of the assets you’ve left behind.
Unfortunately, the probate process can drag on for an extended period of time. For example, the average probate process can range between six to nine months in the state of Florida. In New York, on the other hand, the average is about 15 months.
If your loved ones were counting on your financial support, they could be stuck in a difficult position until the probate court handles your estate.
Keep in mind that probate prices vary based on the asset levels. For example, in California, a $1 million estate could cost $25k-$50k in probate costs depending on whether you use a lawyer.
Control your assets appropriately
One of the biggest benefits of a will is you control the distribution of your assets. Through estate planning, you can create a trust or a will. With a trust, you can maintain control over your assets while you are still alive.
Trusts can be designed to allow you control over how your assets will be distributed and when those distributions will occur. For example, you can use the structure of a trust to distribute your assets to your children in small increments.
In contrast to a will, which would provide a lump sum to your children, a trust can allow for a lengthy period of small amounts of financial support.
You can set up the distribution of the assets based on age. Or you can set up the trust based on other life events, such as graduation from high school or college.
Plan ahead for the worst-case scenario
It can be upsetting to think about the worst-case scenario. Most of us would prefer to stay busy and avoid the possibility of leaving our loved ones behind early.
But estate planning is the best way to protect your loved ones after you pass away or if you become incapacitated.
With a will or a trust in place, you can sleep easier knowing that your loved ones will always be protected financially.
Create a fair division of assets
An estate plan that is dividing up entirely of cash assets may be easy to do. But when you have complex assets, it can be more complicated to divide things among your heirs.
If you make these decisions now, you’ll save your family the difficulty later. Unfortunately, it can be easy for grieving family members to fight over an unclear division of assets.
But if you make a clear plan ahead of time, everyone can move forward based on your expressed wishes.
What happens if you don't have a will?
So, what happens if you don't have a will or estate plan? Some may think that not having a will is that big of a deal. What's the worst that can happen? Well as mentioned above your entire estate can go into probate. Which is a very long-drawn-out process.
But not only that, some family members may end up fighting over the estate. It can get really ugly very fast.
For instance, if you have children or grandchildren then they may end up quarreling over your assets. Or your assets and money could end up not being allocated the way you wish.
Preventing future quarrels and providing for your family financially is one of the biggest benefits of a will.
When should you create an estate plan?
So, now that you know the importance of estate planning and the benefits of a will, when exactly should you create one? It can be easy to put off estate planning until later in life.
Of course, your life will likely change dramatically over the years, so it’s important to keep things up to date. After setting up the initial plan, you should make updates and adjustments every three to five years.
It is normal to think that estate planning isn’t relevant to you at age 18. But taking the time to set up an appropriate plan for your assets in the worst-case scenario.
If you’ve avoided this task so far, take some time to make your way through an end-of-life planning checklist in the coming months.
8 Reasons to create an estate plan based on your life stages
Not convinced of the importance of estate planning? As mentioned earlier, your 30s are likely a time of many life transitions. Here are some reasons to create an estate plan based on your life events.
1. You bought a house
A home can be a major asset or a large burden, which is why creating a plan to cover the mortgage is important.
In the event of your death, if there is no cosigner and no one is appointed to inherit the mortgage then it will go into foreclosure and the bank will take possession of the home.
So if you have equity built up in your home then that means the bank will reap the benefits, not someone you care about. One of the biggest benefits of having a will is to ensure that your home goes to whoever you assign it to.
The beneficiary can either then choose whether they would like to keep the home or sell it. So be sure to include any real estate that you own in your will!
2. You have money in savings
Have any money in the bank? Who should it go to after you’re gone? You need to be sure that you designate beneficiaries on all of your financial accounts.
Whether you are opening an account or have existing accounts, make sure you list who you want to receive the money if something were to happen to you.
Beneficiaries cannot access the accounts until you pass. But it helps speed up the process of getting the money faster and makes it much easier to deal with. Remember that your beneficiaries should match your will because "beneficiaries trump wills."
So if you change your mind or want to divide the funds a certain way you need to be sure to update the beneficiaries as well.
3. You got married
Newlyweds should set up their estate plans to take care of each other. The last thing you want to think about as a married couple is losing one another. However, it's important that you make a plan for all of your assets and personal possessions in advance.
The good news is that you can set up joint bank accounts which gives you both complete ownership of the funds. So if something were to happen to one of you, the funds will transfer to the surviving spouse.
You want to be sure your retirement plan assets, investments, and any other valuable assets are updated as well. This gives you peace of mind that your spouse will not have to go through a dreadful process of dealing with unruly family members or waiting for your estate to go through probate.
4. You got a divorce
A divorce is a critical juncture in your finances, so make sure to update your estate plan. More than likely you don't want your ex reaping the benefits of all of your hard work.
So be sure to get your financial affairs in order as soon as possible and update all of your bank accounts, retirement accounts such as IRAs, your will, life insurance policies, and your power of attorney if you have one!
5. You are expecting a baby
A new little one can change your life and your financial priorities. You can protect their future with an estate plan. One very important thing to consider is who will take care of your child if something were to happen to you and your spouse. Or if you are a single mother.
Having a will gives clear instructions on who you want to appoint as the guardian of your child. Of course, the financial aspects are very important, but you also want to consider your child's safety and happiness as well.
You also want to make sure you update or attain a life insurance policy. This policy can help with the added expense of raising a child. Be sure that you make your beneficiary designation the guardian of your child.
This way they will attain the life insurance proceeds to assist in covering things like their education, food, housing, etc.
When you add a little one into your life, you realize the importance of estate planning more than ever!
6. You have inherited money
A windfall can create a new financial reality which means you need to make adjustments to your estate plan. Having a will in place is necessary so that big sum of money doesn't go into probate.
The great thing about having a will if you do inherit a large amount of money is you can designate it out however you would like. You don't have to pick just one person. So don't feel overwhelmed at this task and think you have to cut out people you care about.
7. You want to build generational wealth
Estate planning is a great way to help build multigenerational wealth for a family wanting to create a long-term legacy for the next generation.
This is true whether you have children or not. Why? Because you could always pass on wealth to your nieces, nephews, cousins, etc. You could even pass it on to a charity or organization of your choice that positively impacts your community.
As you see building generational wealth is another factor in the importance of estate planning.
8. You want to protect digital and physical assets
Online estate planning is also a great way to protect any digital/social assets (cryptocurrency, NFTs, social media account passwords, airline miles, etc.) that you may have. As these can all be included in your estate plan.
Although there are other reasons to create an estate plan, these life events might push you to make some decisions on your estate plan. Don’t let the opportunity to protect the financial future of your loved ones pass you by!
How to create a will and trust
Are you ready to create a will or trust? Luckily, there are affordable options for anyone that wants to create a will and trust. You can set up your estate plan online without breaking the bank.
We'll go over the difference once more between a will vs. trust and how to create a will and a trust!
Will vs. Trust: What's the difference
A will is a legal document that very clearly states what you want to happen to your assets and how your affairs should be handled upon your passing. This would include who the beneficiaries of your will are.
A trust on the other hand is a fiduciary arrangement where the rights to maintain and manage assets are given to a trustee by a trustor for a specific reason or person. For example, you could establish a trust for a child in which the assets cannot be distributed until they turn 21.
So, let's dive into how to set these up!
How to create a will
Now that you know the difference between will vs. trust and the importance of a will, let's discuss how to create one!
Here are key steps to set up a will:
1. Decide what assets to include in your will
The first step is to decide which assets to include in your will. You may have more assets than you realize. Sit down and list out all of the physical and liquid assets that you have so you know what to include.
You should also list any sentimental items you are leaving behind as well.
2. Determine the beneficiaries of the will (your inheritors)
Once you figure out all of the assets you have it's time to decide who your beneficiaries will be. Who do you want to have what? For instance, are you leaving your home to someone or do you want it sold and the profits split among your children?
One of the big benefits of a will is you can choose who you leave your assets to.
3. Assign a will executor
One of the most important parts of creating your will is assigning an executor or personal representative. The executor's job is to carry out your wishes accordingly from a legal standpoint.
You can appoint someone you trust such as a spouse or family member, or seek out an attorney to handle your estate.
4. If you have minor children, designate a guardian
As we mentioned above, you want to designate a guardian if you have any children under 18 years of age. This will ensure that your child goes to someone you trust.
However, you want to discuss this with whoever you feel would make a good guardian to your child prior to appointing them to make sure they are willing and able to do so.
5. Sign and notarize your will
We can't stress this enough. You must have your will signed in order for it to be legal and upheld in court. Otherwise, it's just a wishlist left undone.
It's actually worth the attorney fees to have them draw up the will for you. This will ensure your will is correct and legally binding. It doesn't matter if you know the importance of estate planning if you don't make it legal.
6. Update your will as needed
As you go through various life stages you will more than likely need to update your will. Maybe you're single now and you get married. Or perhaps you have children down the line. Whatever the change is, be sure to update your will as you go.
How to set up a trust
Have you decided that a trust is best for your estate plan? Here is how to set up a trust successfully!
1. Find an experienced estate attorney
Although you can set up the trust on your own it may be best to find an experienced estate attorney to help you. These things can get complicated and having an attorney can make the process more seamless.
This is especially true if you have many assets, real estate properties, or perhaps a business. Having an experienced attorney is how to set up a trust with ease.
2. Determine the type of trust you need
There are different types of trusts to consider before setting one up. There are revocable living trusts and irrevocable trusts. A revocable living trust is a better choice for those that want to be able to make changes.
Why? Because once you set up an irrevocable trust and beneficiaries you can not change it. With a revocable trust, you can also add or remove trust assets. So it definitely has its benefits.
3. Create an inventory of all your assets
Similar to creating a will, you will want to make an inventory of all the assets you will be including in your trust. You can include bank accounts, real estate, stocks, bonds, and other assets in your trust.
When it comes to a will vs. trust, both can help you allocate your assets the way you choose.
4. Pick a trustee/executor
The next step is to pick a trustee. The U.S.Trust Fiduacury Services for Merrill Lynch Clients explains that "A trustee takes legal ownership of the assets held by a trust and assumes fiduciary responsibility for managing those assets and carrying out the purposes of the trust."
You can be the trustee and have co-trustees to assist in managing the money and assets of the trust. Or you could also choose to have an estate lawyer act as the trustee to lessen the burden.
5. Create your trust documentation, sign and notarize it
Now it's time to make your trust legal! You need to create your trust document and have it notarized. It doesn't matter if you have everything in writing. Nothing is binding until you sign it.
6. Fund your trust
Once your trust is created and legal then it's time to fund it. This is when you transfer all of the assets you want to include in the trust. Any bank accounts, real estate, personal property, investments, or business interests can be included in funding the trust.
Put your knowledge of the importance of estate planning to use
Now you know the importance of a will and estate planning! The benefits of estate planning cannot be understated especially in your 30s as you are likely to take on new responsibilities.
With this useful financial tool, you can set up a future for your loved ones even if you aren’t around to provide for them.