Ken and Judy are a couple in their 30s. They recently bought a home, and they have a small child. But apart from some home equity, a retirement account at work and a life insurance policy, they don’t have a lot of assets or investments. Do they really need estate planning? Can’t they get by with a simple will from the Internet?
The truth is, even a couple like Ken and Judy can benefit from a good estate plan, and it doesn’t have to cost them an arm and a leg.
Leaving aside the many serious errors that are commonly found in “form” wills in books and on the Internet, Ken and Judy should consider setting up a living trust.
No one wants to think about it, but suppose something happened to both of them – they died in an accident with a drunk driver, for instance. Chances are, they named each other as the beneficiaries of their life insurance, with their child as the secondary beneficiary. If they both were to die, the insurance company won’t pay their minor child directly. Someone will have to go to court and set up a guardianship over the property.
If Ken and Judy didn’t plan properly, the court might end up appointing a stranger as a guardian to oversee the child’s insurance funds. Every time the child needs money, such as for medical care or schooling, the guardian will have to make a decision about it, and probably petition the court to release the funds – incurring many costs and delays.
Even worse, once the child becomes a legal adult – which might happen when he or she turns 18 – the guardianship will end and the child will have full access to all the money. And very few 18-year-olds are mature enough to wisely handle a financial windfall.
With a trust, Ken and Judy can put someone they know in charge of the assets. That person can use the money for the child’s benefit without endless court costs and attorney fees. Plus, the money can stay in the trust after the child turns 18, and can be used as Ken and Judy direct – for education, a wedding, etc., or given to the child in increments as he or she gets older.
In addition, if Ken and Judy establish a living trust, it can be used later as a vehicle for more complicated estate planning once they acquire significant assets.
Beyond a living trust, Ken and Judy should each have a power of attorney document and a health care proxy. If something were to happen such that one of them became incapacitated – even temporarily – having these documents in place could make life for the other spouse a lot easier. (And while you can find generic documents like these on the Internet, they’re often riddled with errors and don’t take into account the specific needs of you and your family.)
Generic wills also don’t take into account the kinds of assets that don’t go through probate – such as IRAs, 401(k)s, brokerage accounts, and jointly-owned property. A good estate plan should coordinate these assets with a will and/or a trust.
The bottom line is that everyone should have a proper, professionally prepared estate plan. For young people, the process is usually inexpensive and painless, but the benefits can be profound.