Why it's never too early to start estate planning

[UNITED STATES] young adults are often focused on building their careers, traveling, and enjoying life. Estate planning is typically the last thing on their minds. However, recent trends show that millennials and Gen Z are becoming more proactive about their financial futures, including estate planning. This shift challenges the common misconception that estate planning is only for the elderly or wealthy.

The Changing Landscape of Estate Planning

Digital Assets: A New Frontier

One of the primary drivers behind this trend is the proliferation of digital assets. Unlike previous generations, millennials and Gen Z often have significant digital footprints, including cryptocurrency investments, online businesses, and social media accounts with monetary value. These digital assets require careful management and protection, which traditional estate planning may not adequately address.

Pandemic-Induced Awareness

The COVID-19 pandemic has played a crucial role in heightening awareness about health crises and the importance of having arrangements in place for unexpected events. This global health emergency has prompted many young adults to consider their mortality and the potential impact on their loved ones.

Evolving Family Dynamics

Modern family structures, including blended families and partnerships without marriage, necessitate clear directives to prevent potential disputes. Young adults are recognizing the need to formalize their wishes regarding asset distribution and care for dependents.

The Benefits of Early Estate Planning

Control and Protection

By taking proactive steps in estate planning, young adults can ensure that their assets, regardless of size, are distributed according to their wishes. This provides a sense of control and protection over what they've worked hard to accumulate.

Avoiding Probate

Estate planning allows individuals to avoid probate, a time-consuming and costly process for beneficiaries. This is particularly beneficial for young adults who may not have extensive assets but want to ensure a smooth transfer to their loved ones.

Managing Finances and Care

An estate plan enables young adults to make provisions for their care and the management of their finances in case of incapacitation. This ensures that decisions made on their behalf align with their preference.

Minimizing Family Conflict

By clearly stating wishes in legal documents, young adults can help prevent misunderstandings and disputes among loved ones after they're gone. This is especially important in complex family situations.

The Rise of Estate Planning Among Young Adults

Recent data indicates a significant shift in estate planning trends among younger generations. According to Matt Watson, CEO of Origin Financial, there has been a 45% increase in estate planning sessions among millennials and Gen Z who were advised to create a plan.

"Estate planning is an essential step in anyone's financial path. Estate plans are not just for the affluent; they're for anyone who wants to protect their assets and loved ones," Watson emphasizes.

A study from Trust and Will supports this finding, revealing that Gen Z is the most proactive generation when it comes to estate planning. Surprisingly, 33% of Gen Z already have an estate plan, catching up with older cohorts3.

Overcoming Barriers to Estate Planning

Despite the growing interest, many young adults still face obstacles in creating estate plans. The two primary barriers identified by Watson are:

Lack of awareness about the consequences of not having an estate plan

Lack of affordable, simple options for creating estate plans

To address these issues, fintech solutions are emerging to simplify the process and make it more accessible to younger generations.

Key Components of Estate Planning for Young Adults

Wills and Trusts

A will is a fundamental document that outlines how you want your assets distributed after your death. For young adults with children, it's crucial to designate guardians in the will. Trusts can offer more control over asset distribution and can help avoid probate.

Healthcare Directives

Also known as a living will, this document outlines your medical treatment preferences if you're unable to make decisions for yourself. It can alleviate family stress during difficult times.

Power of Attorney

This legal document allows you to appoint someone to make financial or healthcare decisions on your behalf if you become incapacitated2.

Beneficiary Designations

Reviewing and updating beneficiary designations on life insurance policies, retirement accounts, and other assets ensures they go to the right people, even if you pass away young.

The Impact of the "Great Wealth Transfer"

The impending "Great Wealth Transfer" is another factor driving young adults to consider estate planning. As baby boomers age, an estimated $68 trillion is expected to be passed down to younger generations over the next 25 years.

However, the Trust & Will's 2024 Annual Study reveals that 34% of millennials don't know if their parents have an estate plan, and 13% know their parents don't have one3. This uncertainty underscores the importance of open communication about estate planning across generations.

Challenges Faced by the "Sandwich Generation"

Many millennials find themselves in the "sandwich generation," caring for both their children and aging parents. The study shows that 39% of surveyed millennials have taken on this double duty, which can affect their ability to build and pass on wealth.

Despite these challenges, 74% of millennials say it's important to them to pass on wealth to future generations. This desire to create a lasting legacy is a significant motivator for early estate planning.

Getting Started with Estate Planning

Creating an estate plan has never been easier, thanks to fintech solutions and increased awareness. Here are some steps young adults can take:

• Educate yourself about the basics of wills, trusts, and estate planning
• Use online tools and platforms that simplify the process of creating legal documents
• Consult with professionals, such as estate planning attorneys, to ensure your plan meets your needs and complies with state laws
• Review and update your estate plan regularly as life circumstances change

The Role of Digital Assets in Modern Estate Planning

As digital assets become increasingly valuable, it's crucial to include them in estate plans. This can include:

• Cryptocurrencies and NFTs
• Online businesses and websites
• Social media accounts with monetary value
• Digital photo and video libraries
• Email accounts and cloud storage

Providing clear instructions for the management or deletion of digital assets ensures that your online presence is handled according to your wishes.

Estate planning is no longer just for the wealthy or elderly. Young adults, particularly millennials and Gen Z, are recognizing the importance of securing their assets and legacy early on. By taking proactive steps in estate planning, they can protect their digital assets, provide for loved ones, and ensure their wishes are respected.

As Cody Barbo, Founder and CEO of Trust & Will, states, "The sooner Millennials - and their parents - normalize talking about end-of-life plans, the easier it will be when the time comes".

In an era of economic uncertainty and changing family dynamics, estate planning offers young adults a way to take control of their financial future and protect what matters most to them. It's never too early to start planning for tomorrow.