Why You Should Begin Estate Planning in Your 20s

Discussing her financial future

Your 20s are a time of exploration and discovery as your independence—and all that comes with it—kicks into high gear. But are they a good time to make an estate plan?

Having an estate plan that may include financial power of attorney, health care power of attorney, a will and even a trust is important at any age. You never know what the future may bring, and even if you don't have many assets now, putting your wishes in writing allows you to dictate your care and finances. By starting estate planning in your 20s, you can more easily make adjustments as marriage, parenthood, home ownership and other milestones occur.

Why Estate Planning in Your 20s Is Important

Although you likely won't have to worry about it for yourself for many years to come, it's important to know what happens when you (or even a loved one) passes. When you die, your estate may have to go through probate, a court proceeding that oversees how your assets are distributed. If you have a will, probate is a simple process where the court verifies that your will is genuine and ensures the estate's executor distributes your assets properly. And if you have a living trust, you can often avoid the process altogether.

If you don't have a will or trust, the judge makes decisions about your estate and appoints an administrator to carry out those decisions. Your family could wait months or years to receive money from your estate, and could pay a significant amount in probate fees. The judge may also make decisions you wouldn't agree with about your property or guardianship of children.

Whether or not you have many assets, putting an estate plan in writing ensures you're in charge of your health care, your finances and what happens to your property if you die. Sadly, the pandemic has awakened Americans of all ages to the importance of estate planning. According to Caring.com, 27% of 18- to 34-year-olds now have wills, up from 16% in 2020.

If you're married or have children, it's easy to see why estate planning in your 20s matters. But even if you're single and don't have many assets, estate planning gives you control of your property, which would otherwise be taken by the state. Wouldn't you rather leave your bank account, car or 401(k) plan to your sister, best friend or favorite charity than to the government?

What Should Your Estate Plan Include in Your 20s?

An estate plan made in your 20s should include the following elements.

Power of Attorney

You may live with your parents, have $1.67 in your checking account and owe $85,000 in student loans, but you still need a financial power of attorney and health care power of attorney. If you become incapacitated and can't make your own decisions, the person to whom you give financial power of attorney (your agent) manages your finances, while your health care agent makes choices about your health care.

When combined with a living will, a health care power of attorney is sometimes called an advance directive or health care directive. A living will states your wishes for your health care, such as whether you want to be resuscitated or kept alive by artificial means or want to donate your organs. Having your wishes in writing makes it easier for your agent to make tough decisions.

Your advance directive may also explain your wishes regarding burial. It's better to put this information here than in your will, which may not be read until weeks after your death.

Named Beneficiaries

If you have a 401(k) or other retirement plan, life insurance, stocks, bonds or brokerage accounts, you should name a beneficiary for each of these accounts, plus a backup beneficiary in case your primary beneficiary dies. You can also name a payable-on-death (POD) beneficiary for your bank accounts (your bank can help with this). When you die, these assets will go directly to the beneficiary instead of going through probate.

Last Will and Testament

Your will explains how to distribute your assets after your death. Want to leave your car to your boyfriend or your baseball card collection to your favorite niece? This is the place to do it. If you've listed beneficiaries in the accounts noted above or have property in a living trust, however, don't list those assets in your will. You'll also need to name an executor—the person who manages your estate, ensuring your assets get distributed and your debts get paid. It's a good idea to name a backup executor too.

Other Estate Plan Elements You May Need

If you have young children, your will should name a guardian and trustee for them. A guardian takes custody of your children and raises them; a trustee manages their money. Often, these are the same person, but they don't have to be. Name a backup guardian and trustee as well.

If you have significant assets, such as a house, or if you have a complicated family situation, such as an ex-spouse and children, consider setting up a living trust. The trust is a legal entity that holds your assets, protecting them from creditors after you die and eliminating the need to go through probate.

How to Start Your Estate Plan

Creating an estate plan and making sure it's done right can be quite affordable. For example, health care power of attorney and advance directive forms are available free from your state attorney general's office. When creating your will, make sure it complies with state law so it will be considered valid. Options for a full estate plan include:

  • Websites such as LegalZoom, Nolo, RocketLawyer and Trust & Will can help you complete a will, power of attorney and other estate planning documents, often with support from estate planning attorneys.
  • You can also use a do-it-yourself template to draft a will and have a local attorney review it.
  • Many attorneys offer flat-rate estate planning packages, ranging from a few hundred dollars for a basic will to a few thousand dollars for an estate plan with a trust. Check the Martindale directory of attorneys and the National Association of Estate Planners & Councils to find an attorney near you.

Plan for the Future

Putting an estate plan on paper provides peace of mind that if anything happens to you, your wishes for your property, health care and family will be carried out. Update your estate plan whenever you have a major life change like getting married, having a child, buying a home or opening a new retirement account (find out how much money you can save by age 50). Make an annual review of your estate plan and beneficiary designations part of maintaining your overall financial health, along with reviewing your credit report and credit score.

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