Estate planning is a crucial yet often overlooked aspect of financial planning, especially for millennials who may be inclined to postpone it until later in life. Creating an estate plan is not just about distributing assets, however; it’s about ensuring that your wishes are respected, your loved ones are protected, and unique challenges are addressed. Below are 10 essential questions and answers about estate planning for millennials, covering everything from foundational documents and healthcare considerations to the intricacies of passing along retirement assets, addressing the needs of aging parents, and even making provisions for cherished pets. By proactively addressing these topics, a millennial can help secure their financial legacy and have reassurance for themself and their family.
10. What are estate planning documents?
Foundational estate planning documents cover end of life (e.g., will, revocable trust) as well as incapacity (e.g., healthcare power of attorney [HCPA], financial power of attorney [FPOA]). Additional documents can be included in an estate plan to address more-complex matters, such as business assets or taxation.
9. Why are estate planning documents important?
These documents allow you to choose someone to make decisions if you’re incapacitated, as well as administer your estate and follow your wishes. Without estate planning documents, state “intestacy statutes” determine who may receive assets from your estate. This may or may not be what you want. Estate planning documents can also help avoid the lengthy and costly probate process, in which the court administers your estate and the transfer of assets to beneficiaries. Ultimately, estate planning documents save time and money, require less additional paperwork, and can help reduce the emotional stress of your loved ones during a difficult time.
8. Who makes my healthcare decisions if I’m unable to?
Multiple healthcare documents can be part of a foundational estate plan. These include HCPA, living will, and HIPAA authorization form.
An HCPA designates who should make medical decisions if you’re no longer able to. These decisions can include which doctors you see, medications you take, and even where you live. If you need to be admitted to a long-term care facility, your healthcare agent can make that decision.
A living will states your wishes for end-of-life decision-making, specifically whether to be removed from life support. The living will may also address your preferences for certain types of life support, such as a feeding tube, artificial hydration, or medication.
A HIPAA authorization form designates who may receive or access your private medical information. It can be limited to one person, such as a spouse or agent acting on your behalf or be more extensive and include immediate family and close friends. This document allows your designee(s) to request medical records more easily upon your death, which can be crucial if a malpractice claim is being weighed.
7. How can people access my financial accounts to pay my bills?
An FPOA designates who should make day-to-day financial and business decisions if you’re incapacitated and no longer able to. A financial agent typically accesses individual bank accounts to pay bills, closes a credit card account, sells a house or car, files a tax return, or accesses digital assets such as a social media or email account.
6. What is estate tax, and do I need to worry about it?
Depending on the size of your estate and where you reside, estate and inheritance taxes may be factors to consider. Estate tax is applied when assets are transferred after your death. The federal estate tax exemption in 2024 is $13.61 million per person. Currently, 12 states (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington) and the District of Columbia have an estate tax.
Six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) have an inheritance tax that’s incurred by the beneficiaries of an estate. Depending on the state, certain beneficiaries, such as spouse or child, may be exempt from this tax.
5. My parents are getting older — what do I need to know?
Millennials, like other demographic groups, commonly find themselves caring for a child while also caring for an aging parent. The ability to provide care for a parent can be limited or delayed by a lack of estate planning documents or limited knowledge of their wishes. When considering your own estate planning questions (e.g., who’s in charge of making decisions, what assets are in the estate, when to be removed from life support), discuss them with your parents as well. Knowing whether they have estate planning documents and where they’re stored can be important first steps in providing adequate care when it’s needed.
4. How does my retirement account pass to a family member?
Beneficiary designation is the most common way a retirement account is transferred. Naming a spouse or other beneficiary allows them to receive the account as an inherited IRA. The rules for making withdrawals from the account depend on the beneficiary’s relationship to you.
The rules changed recently with the passage of the SECURE 2.0 Act. These changes may affect your beneficiaries — and they could affect you if you’re the beneficiary of someone else’s IRA, such as a parent’s. Currently, a surviving spouse is allowed to roll over an inherited IRA to their own account and delay taking required distributions until they reach retirement age. But other beneficiaries, such as a child, don’t have that same benefit. Instead, children (with exceptions that include minors and those with special needs) are required to begin taking distributions immediately. Furthermore, the account must be fully distributed by the end of 10 years.
3. Cohabitation outside of marriage: Will my partner be able to stay in our house?
Millennials live with a partner outside of marriage more than previous generations in the modern era. This creates interesting issues regarding ownership as well as inheritance. A cohabitation agreement is commonly used to outline how partners will split their financial responsibilities and household assets if they break up. But not all agreements address the transfer of property upon death. Unlike a spouse, a partner doesn’t have the legal protections and advantages of marriage. If neither the deed to a house nor a cohabitation agreement addresses ownership of the property, a surviving partner could find that they don’t own the home they’ve lived in for years.
2. Who’ll take care of my pet if something happens to me?
Today, pets are considered an important member of the family, and many owners want to ensure that their pet isn’t a financial burden for a caregiver after the owner’s death. A pet trust allows an owner to set aside funds and name a trustee, or money manager, to carry out terms of the trust in the best interests of the pet. The owner can also designate the caregiver who’ll be responsible for the daily well-being of the pet, including food, shelter, medical care, exercise, and companionship.
1. Guardianship: Who’ll take care of my child?
The single most common concern for a millennial who has a child or children (or is planning to eventually) is who’ll provide care if they pass before the kid reaches adulthood. Guardianship is the designation of someone who’ll have physical custody as well as the authority to make healthcare and financial decisions for a minor child. The rules vary by state, but generally you’re allowed to name a guardian through a will (in the event of death) or through an FPOA (in the event of incapacitation). Without formal documents in place, state statutes will determine who has the right to apply for guardianship based on the best interests of the child. Typically, the designee is a biological parent or nearest living relative, such as an adult sibling of the minor child, a grandparent, or the deceased parent’s sibling. A challenge faced by many families is when multiple members have an equal right to guardianship, such as both sets of grandparents seeking responsibility for a child. Making these decisions ahead of time can help reduce the friction that often occurs when family members must sort it out among themselves.
Estate planning is not merely a task for the elderly; it’s a proactive and empowering process that millennials should prioritize. These 10 essential questions and answers about estate planning can help millennials not only safeguard their assets but also ensure that their values and preferences are honored after death. By embracing this preparation now, you can help achieve confidence and lighten the burden on loved ones during what will surely be a difficult time for them. Mercer Advisors has a team of specialists who can help with the estate planning process. Contact us today to learn more, no matter how young you are or how far off the need seems to be.
