Broaching the topic of your own death with your parents, siblings or partner may sound pointless if you're in your 20s or 30s, especially if you have no dependents. Without much of a net worth to speak of, why get morbid over dinner? And isn't estate planning just for rich people with, well, estates (homes, big-money bank accounts and investments) who are trying to keep the government from taxing too much of their money anyway? There is a point if you want to prevent your family from compounding the traumatic experience of your death with the added stress of tracking down your financial accounts or being on the hook for your debts. Unfortunately, it's quite possible to die young. According to the Centers for Disease Control, 106 per 100,000 Americans died between ages 25-34 in 2013, jumping up to 172 per 100,000 in the 35-44 age group. The leading cause of death for millennials is accidents or unintentional injuries, which is why it's important to take these four simple steps to protect your loved ones.
1. Put Beneficiaries on All Your Accounts
It's easy to ensure your investment and bank accounts get passed on to new, rightful owners in the case of your untimely death. You may be able to just do it online by going to account management or a similar landing page and clicking on beneficiaries. You will likely need your beneficiary's full legal name, birth date, address, phone number and Social Security number. For this reason, you should also let your beneficiary know what he or she is inheriting and where the account is held. Just saying, "Hey, you'll get my 401(k)" isn't as helpful as, "You’ll be inheriting my 401(k) and here's the information on the sponsor of my company plan."
You can also put beneficiaries on your bank accounts and other investment accounts like index funds or IRAs. You may also come across the terms Payable on Death (PoD) and Transfer on Death (ToD). A PoD is a beneficiary designated for a bank account while a ToD is for an investment account.
Your beneficiaries will have no rights to your funds while you're alive, so don’t be concerned that your sibling or parents could liquidate an index fund or take a loan from your 401(k) or scoop up some money out of savings. You should also check in on your designations at least once a year in case they need to be updated. Major life events like a marriage, the birth of a child or divorce could be a reason to change your designated beneficiaries.
It is free to set up your beneficiaries and makes it much easier for your loved ones to receive their inheritance from you—no matter how meager—without having to tussle with probate court.
2. Avoid Probate Court
Probate court is the land your assets go to to be divided up fairly. OK, that's an oversimplification. Probate court is used to determine the authenticity of your will, pay your debts and taxes, identify your heirs and properly distribute your belongings, among other things. This process can be time-consuming and eat away at your estate. And if you're young without much to your name, it could really put a dent in the amount you can pass on to loved ones.
Putting beneficiaries on accounts keeps that money out of probate court, which prevents unnecessary fees from decimating the funds you can pass on. The money will go directly to your beneficiary.
It is important to know that beneficiaries on an account trump what's in your will. While it’s still important to have a will, it's just as important to ensure beneficiaries are up-to-date.
3. Draft a Basic Will
Creating a basic will is relatively inexpensive, depending on how much you need covered, and can even be done online. Attorneys and financial planners may wince at the notion of you drawing up a will using online software, but it may be a reasonable solution if you only have the most basic of estates and no dependents (except, perhaps, a dog).
Your will should overview who is to receive various items in your estate, ideally it will match with your beneficiaries across investments and bank accounts, and you should also account for children and pets. Decide who you would want to have guardianship and be sure to check with this person before writing down his or her name.
Let your parents, siblings, partner or anyone else included in the will know of its existence and its whereabouts. It's also wise to write down a list of all your accounts and passwords and put it away in a safe place or with an attorney. This list should not only include your financial accounts but also social media and perhaps ways to connect with utility companies and other automated bills your family will need to discontinue.
4. Get Life Insurance If You Have Co-Signed Student Loans
Student loans may be the millennial curse, but it can quickly be transferred to your parents if they co-signed on a private loan. Federal student loans are typically discharged in the case of death of the borrower himself or the person for whom the loan was taken out. However, private loans aren't always discharged. If your parents or anyone else co-signed on a student loan with you, then you should have life insurance that at minimum covers the amount of that loan.
The life insurance policy should also be set up so the person who co-signed on your loan is the beneficiary. Otherwise, it could be a big pain for your co-signer to receive the funds without major tax implications in order to pay off the loans. A basic term life insurance policy should be affordable for your budget and provide enough money to cover any co-signed student loans.
You should absolutely have both life insurance and a will if you have children or other dependents who rely on your income.
It's Awkward, But Get Over It
Talking about death can be really awkward. Your parents or siblings may even shut it down on your first go around. But being proactive is a beautiful gift of love in the off chance your loved ones ever find themselves in a position to be settling your estate. Even just a few hundred or thousand dollars in a savings, retirement or investment funds should find its rightful place in the hands of your family and not in probate court. Do yourself, and everyone else important in your life, a solid and just take the minimal time to be prepared for the worst case scenario.