Estate PlanninG

Essential Estate Planning Tips For Millennials

As a millennial, you are contributing to the workforce in a major way and are making positive changes in the world around you. We understand that your concerns may differ from someone of a different generation, and we are here to help you craft an estate plan that protects your future and addresses the things that matter most to you. The following are some important steps you need to take to ensure that you have a comprehensive estate plan.

Choose Your Key Decision-Makers

If you become incapacitated (for example, due to a severe injury, dementia, or a stroke) and can no longer manage your affairs during your lifetime, no one can step in for you without court intervention unless you have legally designated someone to act on your behalf while you still had 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.

If the court is required to appoint someone to make decisions for you and you are unmarried, state law will generally prioritize your immediate family members over a significant other or friend to take on this role. You need the right legal tools to ensure that you get to choose the people who will be making these important decisions.

If you need someone to make financial decisions for you, you need to make sure that you 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 waits 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 two different legal tools. You have the option of selecting the same or different people to act in these roles depending on skill sets or other considerations.

Make Sure to Fill Out All Employment Forms Appropriately

According to a 2023 article analyzing U.S. Census Bureau data, millennials make up the largest group of individuals in the workforce at 49.5 million people, as compared to 42.8 million Gen Xers, 17.3 million baby boomers, and 17.1 million Gen Zers. Many jobs come with employer-provided life insurance and the ability to contribute to a retirement plan. These are two very important financial tools. However, you must review the beneficiary designations for these tools and ensure that they have been completed correctly. If the beneficiary designations are not filled out properly or are not filled out at all, the money may end up going 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 end up going through the probate process, which can be time-consuming and costly. Alternatively, some accounts or policies have their own 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. In both of these cases, you are not in control of who receives these accounts and policies.

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 right beneficiary and the right way to leave the retirement account or life insurance death benefit to carry out your wishes.

Naming an Individual as a Life Insurance Beneficiary

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 then be vulnerable to your beneficiary’s creditors, divorcing spouse, or a lawsuit. Further, you may believe that your beneficiary is not able to handle inheriting a large sum of money all at once (or your beneficiaries may be minor children or individuals with special needs). If the death benefit for your life insurance policy is rather large, you may want to investigate other options.

Naming a Trust as a Life Insurance Beneficiary

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, and the trustee will then use the money according to the instructions you have 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.

Naming a Charity as a Life Insurance Beneficiary

Making a charity the beneficiary of your life insurance policy can be a great way to leave a philanthropic mark at your passing. At your death, the death benefit can be paid directly to the charity. 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 at the time you create your estate plan is incredibly important if you have specific requests for how the money will be used. You may need additional planning tools to ensure that the death benefit is distributed and used the way you want.

Naming a Spouse as a Retirement Beneficiary

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. In some cases, 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 own retirement account (often called a spousal rollover) and treat the account as their own. This can provide additional asset 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 own 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.

Naming a Minor Child as a Retirement Beneficiary

A minor child who inherits retirement assets as a direct beneficiary may take small distributions (called requirement minimum distributions, or RMDs, which are based on their life expectancy) every year until they reach the age of 21. At that age, they are required to take the remaining balance of the account within 10 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 10-year period, or they can choose to withdraw everything all at once. Once the child is an adult, they are free to make whatever decisions they want.

Naming an Adult Loved One as a Retirement Beneficiary

An adult loved one may be considered part of the group that is required to receive the entire retirement account within 10 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.

Naming a Trust as a Retirement Beneficiary

Another option for naming a beneficiary of a retirement account 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 certain criteria under the law 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 full 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 full amount of the funds distributed from the retirement account to the trust can stay in the trust and can 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.

Naming a Charity as a Retirement Beneficiary

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.

Have a Game Plan If You Are Not Married

According to Statista, only 44 percent of millennials were married between the ages of 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. 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 your 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 members.

Do Not Forget Your Pet

Another unique characteristic of millennials is that they make up the largest percentage of current pet owners, according to Forbes. These beloved family members need care and attention, much like a child does. It is therefore important 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. 

Who Will Take Care of Your Pet?

The role of pet caregiver is similar to the guardian of a minor child. This person will care for your pet if you no longer can. Not only is it important to make sure that you have chosen a caregiver for your pet; 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 larger sum of money, it is important to consider how it will be managed. Some people are comfortable giving the full 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 provide compensation for your chosen caretaker as a thank-you for the time and energy required to care for your beloved pet.

Now Is the Time to Plan

It is not pleasant to think about what will happen if you cannot manage your own 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. Call our office to schedule your appointment.

Call Santaella Legal Group, serving all of California, at (925) 831-4840, or reach out to us here.