As a millennial, you are contributing to the workforce in a significant way and are making positive changes in the world around you. We understand that your concerns may differ from those of a different generation, and we are here to help you craft an estate planning process that protects your future and addresses the things that matter most to you. The following are some essential steps you need to take to ensure that you have a comprehensive estate plan.
Suppose you become incapacitated (for example, due to a severe injury, dementia, or a stroke) and can no longer manage your affairs during your lifetime. In that case, no one can step in for you without court intervention unless you have legally designated someone to act on your behalf while you still have the mental capacity to do so. By law, no one can automatically make your medical decisions or manage your finances—not even your parents or your spouse.
Suppose the court appoints someone to decide for you, and you are unmarried. In that case, state law will prioritize your immediate family members over a significant other or friend to take on this role. You need the proper legal tools to ensure that you get to choose the people who will be making these critical decisions.
Suppose you need someone to make financial decisions for you. In that case, you must name an agent under a financial power of attorney and give them whatever authority you are comfortable giving. You can allow the agent to act on your behalf immediately after you sign the document (in other words, without waiting until you are no longer able to manage your affairs) or require that the agent wait until you cannot act (depending on the type of financial power of attorney prepared for you and your state's law). You may also need to have someone make medical decisions for you if you are unable to make or communicate your wishes. You must appoint an agent under a medical power of attorney to carry out this role. It is important to remember that these are two different roles and legal tools. Depending on skill sets or other considerations, you can select the same or different people to act in these roles.
According to a 2023 article analyzing U.S. Census Bureau data, millennials comprise the largest group of individuals in the workforce at 49.5 million, as compared to 42.8 million Gen Xers, 17.3 million baby boomers, and 17.1 million Gen Zers.[1] Many jobs come with employer-provided life insurance and the ability to contribute to a retirement plan. These are two essential financial tools. However, you must review the beneficiary designations for these tools and ensure they have been completed correctly. Suppose the beneficiary designations are not filled out properly or are not filled out at all. In that case, the money may go through probate and distributed according to your will or, if you do not have a will, according to the state's rules. Not only does this mean that you may not be able to choose who gets this money, but your loved ones may also go through the probate process, which can be time-consuming and costly. Alternatively, some accounts or policies have rules about what happens if the beneficiary designation form is not filled out. In that case, the retirement account or life insurance policy agreements will determine who will get the money and how much they will receive. You do not control who receives these accounts and policies in both cases.
In addition to ensuring that the beneficiary designation is completed, you also need to think carefully about whom you want to name as the beneficiary. We can assist you in determining the proper beneficiary and the right way to leave the retirement account or life insurance death benefit to fulfill your wishes.
While leaving a lump sum to a loved one sounds like an easy and lovely way to be remembered, it comes with potential drawbacks. In most cases, the beneficiary will receive the death benefit in one lump sum to do with as they please. This may make administration easy, but the lump sum would be vulnerable to your beneficiary's creditors, a divorcing spouse, or a lawsuit. Further, you may believe that your beneficiary cannot simultaneously handle inheriting a large sum of money (or your beneficiaries may be minor children or individuals with special needs). If the death benefit for your life insurance policy is relatively significant, you may want to investigate other options.
Using a trust can be a great way to protect the inheritances you leave behind for your loved ones. If you designate your trust as a beneficiary, the lump sum is paid to the trustee, who will then use the money according to the instructions you provided in the trust agreement. This means that you can dictate what the funds will be used for and possibly add provisions that make it more difficult for your beneficiary's creditors, divorcing spouses, or lawsuit plaintiffs to reach the funds.
Making a charity the beneficiary of your life insurance policy can be a great way to leave a philanthropic mark at your passing. The death benefit can be paid directly to the charity at your death. When leaving money to a charity, you need to work with the organization to understand their needs and any special requirements that must be met for them to be able to accept your donation. Gathering this information when you create your estate plan is crucial if you have specific requests for how the money will be used. You may need additional planning tools to ensure the death benefit is distributed and used however you want.
Many married couples look at saving for retirement as saving for their joint retirements. This often leads to the spouse being named as the primary beneficiary of a retirement account. Sometimes, the spouse must be named as the primary beneficiary unless they consent to someone else being named as the primary beneficiary. Naming the spouse as the direct beneficiary of the account will likely give the spouse the option to transfer the inherited account into their retirement account (often called a spousal rollover) and treat the account as their own. This can provide additional assets and bankruptcy protection since the spouse would be the account's new owner. However, this option is only available to surviving spouses. Alternatively, the spouse could keep the account separate from their retirement assets as an inherited account. The spouse may be able to use their life expectancy when withdrawing money from the retirement account instead of being locked into the 10-year payout.
A minor child who inherits retirement assets as a direct beneficiary may take small distributions (requirement minimum distributions, or RMDs, based on their life expectancy) every year until they reach age 21. At that age, they are required to take the remaining balance of the account within ten years or by the time they reach the age of 31. While children are still minors, their RMDs will likely be held in a protected account overseen by their guardian or conservator until they reach the age of majority in their state of residence (usually between the ages of 18 and 21). Once the child becomes an adult, they can choose to make periodic withdrawals during the ten years, or they can choose to withdraw everything all at once. Once the child is an adult, they can make any decisions.
An adult loved one may be considered part of the group required to receive the entire retirement account within ten years of the account owner's death unless some other exception applies. However, nothing prevents an adult beneficiary from withdrawing the entire retirement account balance the day they inherit it.
Another option for naming a retirement account beneficiary is to create a trust for your loved one and name the trust as the beneficiary (rather than naming your loved one individually). This option can work for see-through trusts that meet specific legal criteria and allow the applicable trust beneficiaries to be treated as beneficiaries of your retirement account.
There are two types of see-through trusts: conduit trusts and accumulation trusts. A conduit trust requires that all distributions made from the retirement account to the trust are distributed to the beneficiary (or used for the beneficiary's benefit) as soon as the trust receives it. The terms of the trust can ensure that the entire distribution period is observed and that a beneficiary does not liquidate the retirement account immediately. An accumulation trust allows the trustee to decide whether to pay out the withdrawals to the beneficiary (or for the beneficiary's benefit) from the retirement account or to retain the funds in the trust. As a result, the total amount of the funds distributed from the retirement account to the trust can stay in the trust and potentially be protected from claims made by outside creditors. Like a conduit trust, the accumulation trust will enable you to ensure that the beneficiary cannot liquidate the retirement account immediately after you pass away. With both types of trusts, you can dictate who will inherit the retirement account if the named beneficiary passes away before they receive the entire account.
Another option is to name a charity as the beneficiary of your retirement account. Because the charity would receive the distribution, there would be no income tax consequences for the charity or you. Although you would still have to count the retirement account as part of your estate, the fact that the account is going to charity (so long as it is a qualified organization) means that there will be a reduction in the amount that would be subject to estate tax, and therefore less tax would potentially be due.
According to Statista, only 44 percent of millennials were married between 23 and 38 in 2020, while 53 percent of Gen Xers, 61 percent of baby boomers, and 81 percent of the silent generation were married between those ages.[2] Just because you are not married does not mean that you do not have a loved one whom you care for and would like to provide for when you pass away. If you do not create a proactive estate plan, your money and property will be distributed according to rules established by the state. These laws typically prioritize giving money and property to your spouse, children, parents, and siblings. An unmarried significant other will have no right to your money and property. You need a proper estate plan if you want money and property to go to someone other than your family.
According to Forbes, another unique characteristic of millennials is that they make up the largest percentage of current pet owners.[3] These beloved family members need care and attention like a child does. Therefore, it is vital that you address your pets in your estate plan. The extent to which you include them in your estate plan can vary depending on the types of pets, the number of pets, the pet's current health, and the pet's ongoing needs.
The role of a pet caregiver is similar to that of the guardian of a minor child. This person will care for your pet if you no longer can. Not only is it essential to make sure that you have chosen a caregiver for your pet, but you should also choose backups just in case your first choice cannot care for your pet. You can leave detailed instructions or general recommendations for your pet's care, whichever works best for your pet's situation.
You can also decide whether you would like to set aside money to help the caregiver cover the pet's cost of care. Some people choose to give their chosen caretaker a one-time monetary gift. Others may consider creating a budget to more accurately determine the amount they want to leave for their pet's needs. Your approach will be based on the available funds and your caretaker's ability to assume the financial responsibility of caring for your pet. When dealing with a more significant sum of money, it is essential to consider how it will be managed. Some people are comfortable giving the total amount to the caretaker so that the caretaker can easily access the money for the pet's needs. Others prefer a trust to hold the funds and ensure that some oversight is in place. This can be done by using a trustee to manage the funds.
Lastly, you will want to consider whether you would like to compensate your chosen caretaker as a thank-you for the time and energy required to care for your beloved pet.
It is not pleasant to think about what will happen if you cannot manage your affairs or when you die. We are here to walk you through some important considerations so you can have peace of mind knowing that you and your loved ones (human and animal alike) are prepared for whatever life may throw at you. Your next step is to book a call.
[1] Emily Peck, Zoomers Will Overtake Boomers at Work Next Year, Axios (Nov. 22, 2023), https://www.axios.com/2023/11/22/gen-z-boomers-work-census-data.
[2] Share of Americans Who Were Married Between the Ages of 23 and 38 in 2020, by Generation, Statista, https://www.statista.com/statistics/318927/percentage-of-americans-whe-were-married-between-age-18-32-by-generation (last visited June 25, 2024).
[3] Michelle Megna, Pet Ownership Statistics 2024, Forbes (Jan. 25, 2024), https://www.forbes.com/advisor/pet-insurance/pet-ownership-statistics.
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