While the information below will apply to everyone, it is meant more for the younger crowd – millennials and the older Gen Z zoomers. When we hear the words estate planning or any legal terms related to it, most of us conjure a picture of our parents or rich people doing funny things to protect their money from the government. In reality, estate planning is something we should all be doing, even it feels like you’re broke or drowning in student loan debt.

Planning Without Assets: Powers of Attorney

To begin, let’s talk about what if you don’t have any large assets to speak of and no children of your own to worry about. Even if you don’t have a nice house or big bank account of your own, you can still be in an emergency situation and unable to manage your finances or make medical decisions. No one is immune to tragedy or accidents. If you are in a state where you can’t manage yourself or your life, but you don’t have anyone with authority to step in, then you’re handing your friends or family a massive headache on top of worrying about your wellbeing.

You should have a power of attorney in place, granting someone authority to work on your behalf and step in in the event of an emergency. This brings us to essentials 1 and 2: your powers of attorney – specifically a financial power of attorney and a health care power of attorney (also known as an advance health care directive or living will). What these documents do is grant someone authority to make decisions on your behalf for finances or medical.

Consider this, if you’re in the hospital due to a car accident, then how are you going to pay bills, cash checks, talk to insurance companies, etc.? Yes, you might have your phone with you, assuming it isn’t broken, but who is to say you’ll even be in a right frame of mind to manage life at that moment. This also leads us to medial decisions as well. The doctors and nurses are going to need to see some documentation on who you granted authority to make medical decisions. Leaving it up to chance means you might be leaving this up to a judge to ultimately decide such as the Terri Schiavo case where a 26-year-old had no documents in place, suffered a medical emergency leaving her in a vegetative state, which ultimately lead to a 15-year legal batter between her husband and parents on whether to keep her alive or not.

On top of this, banks won’t do anything to help without something in writing. At least with medical staff, your family will get a person to talk to with some empathy, unlike a large corporate bank. Thus, even if you think you have nothing, you should have something in writing giving someone authority to help you when you need it.

Planning with Children: A Will or Minor Guardian

Next, we have planning that we stress is a requirement if you have a child. After making sure your house is ready and you have formula on hand, one of the first things you should do after coming home from the hospital with a baby in tow is to create a Last Will and Testament. One, you should have your wishes in writing as to where your assets are to go after your passing regardless. Second, and most importantly here, is you should have your wishes documented as to who is to become the guardian of your child or children should you pass away before they reach adulthood. You make that nomination of a minor’s guardian in your Last Will and Testament.

The situation we find more depressing than children fighting over mom and dad’s money, is when families are fighting over who is going to take care of children after the parents pass away. Not only is the child dealing with the death of their parents, but they now have a massive upheaval in their life, made worse by family fighting each other when they should be coming together. As soon as you have a child, you should make it clear who you wish to take care of them if something happens to you.

Yes, this is a nomination, as the only one who makes that final determination is a judge in family court, but making your wishes known, in writing, well in advance, will carry huge weight with the judge when they make their guardianship order. They judge will do what they think is best for the child, but they don’t know your family like you do. Nobody knows your child’s needs like you do. Make sure to do what is right by them, even if you aren’t there to take care of them anymore.

As a side note, pets are legally considered property, but we assume you would want to make it clear who is to take care of your fur baby so don’t forget to plan for your pets as well.

Planning with Assets

Now, let’s quickly discuss planning with assets. This is going to be just about the same for everyone, regardless of age. We have already discussed a Will. If you want a say so as to who is to receive what of your assets, then you need to do so in writing. Otherwise, there is no guarantee things will go where you want them to.

Taking this a step further, once you have started accumulating larger and larger assets, you should step up your protection of them. That means if you have a house, regardless of the value and regardless of how much you owe on that mortgage, then you should have a living trust. The trust allows you to direct who is to receive what from your estate and will ensure your heirs get to stay out of probate court and thus save a lot of money by cutting our court and required legal fees. This is especially import early on when we have a lot of debt in our estates, and thus need to make sure we can save every penny, especially when our young children are concerned.

Real estate isn’t the only factor to consider when analyzing whether a living trust is needed or not, though it is often the largest and most common factor. The other main factor is simply having a large enough estate in cash or other assets. What constitutes “large” will vary by state so you should check your particular state’s probate threshold. Here in California, it’s $184,500 for 2022, meaning we can pass that much on outside of a living trust, and not have to go to probate court. Anything above that figure outside of a living trust will need probate court approval. Additionally, that number is cumulative, not by account, so we need to think of the complete picture.

Student Loan Considerations

Next, are some smaller considerations so here at number 5, we have student loan debt. Federal student loans discharge at death, meaning no further payments will be required. This includes federal Parent PLUS Loans parents may have taken out on your behalf. Private student loans will be different however, since it will be up to the lender. The likelihood of the loan being forgiven is better if you took out the loan personally, but if you had someone co-sign on that loan, they might still be on the hook for repayment unless it’s a new loan issued after November 20, 2018, thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act. Additionally, loans taken out after marriage may still need to be paid by your surviving spouse if they either co-signed or you live in a community property state, like California.

Review Retirement Accounts

If you have any retirement accounts like an IRA or 401(k), then make sure your beneficiary designations are up to date. Those funds become the property of that beneficiary after your passing, and thus won’t count towards the probate threshold. However, if you don’t have beneficiaries designated – or they pass away before you – then that money has nowhere to go, stays in your estate, and could trigger a potential probate depending on the value of that account. As a failsafe, if you have a living trust, you can designate your trust as the beneficiary of that retirement account, so the money stays in trust, and goes to whoever you designate as a beneficiary of your trust, and thus avoids a probate issue.

Crypto and Other Online Assets

This brings us to crypto and your other digital assets. Don’t forget to plan around these assets as well. Many time, these online-only companies are sophisticated enough to know what to do with someone’s account after they pass away so you’ll have to do some of the heavy lifting in either a financial power of attorney, will or trust when planning around these assets. From experience, online banks will have talked to an attorney and at least know what to ask for, although your family will probably have to mail documents and forms back and forth. However, working with these newer companies and exchanges for purely digital assets is still the wild west. It’s hit or miss as whether they even know what to ask for. Often times you can tell they put all their efforts towards the technology of the platform and let the customer administrative side play catch-up. This is where you hear terms like a “digital executor.” Our recommendation is to simply make it clear you are granting someone authority over digital assets and where those digital assets are supposed to go.

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