Lately, friends, family, and clients seem to be asking the same questions: “When should I think about estate planning? Is it actually necessary for me to have an estate plan?” As life is unpredictable, it is better to start planning sooner rather than later. In fact, upon attaining the legal age of majority in your state of residence (typically at age 18), you should begin considering some form of an estate plan. An individual’s estate planning needs, however, vary based on numerous factors, assessed generally in the timeline below.
Individuals in their 20s are typically focused on starting their careers, acquiring assets, and just living life—death is consequently one of the last things on their minds. In fact, many individuals in their 20s do not consider any form of an estate plan and likely do not believe they need one. While a Will or trust may not be necessary for most individuals in their 20s, “ancillary” estate planning documents, such as a power of attorney, healthcare proxy, and living will, should all be considered. These ancillary documents are also known as “living” estate planning documents because they go into effect while you are alive as soon as they are executed. These ancillary documents appoint an agent or agents to carry out your financial or health wishes, as applicable, in the event you become incapacitated, either temporarily or permanently. These documents may also assist in avoiding the need for the appointment of a guardian or conservator if you were to become incapacitated or unable to care for your own financial and/or medical affairs.
In addition to these ancillary documents, individuals in their 20s should also ensure that all of their bank accounts, brokerage accounts, retirements accounts, and life insurance policies have valid beneficiary designations. By designating a beneficiary on these accounts and policies, you not only control the disposition of your assets, but also may effectively avoid probate at death.
Of course, if you get married, divorced, remarried, have children, buy a home, and/or inherit a large sum of money in your 20s (or at any time), then estate planning becomes more crucial (as discussed in more detail below).
Individuals in their 30s through 50s may reach various milestones, whether it is marriage (or remarriage), having children or adopting, owning property or numerous properties, acquiring capital, starting their own business, continuing the family business, etc. In addition to reaching any of these milestones, individuals during this time may also experience life-changing events such as divorce, death in the family, inheritance from family members, moving to another state, and more.
Individuals in this age bracket are more likely to reach any of these milestones or experience these life events, so this is an ideal time to get necessary documents in place for your estate plan, such as a Will and ancillary documents. Additionally, depending on your financial circumstances, a trust (or two, or three, or more) may be needed to accomplish your estate planning goals.
If you plan to get or are married, divorced, or remarried, it may be time to give your estate planning attorney a quick call. Estate planning is often negotiated in prenuptial, postnuptial, and separation agreements. Therefore, individuals should update their estate planning documents when they marry, divorce, or remarry to ensure that they are in compliance with any prenuptial, postnuptial, and/or separation agreements in place.
Upon getting married, divorced, or remarried, you should also update your estate plan to include your new spouse and/or remove your ex-spouse. A new spouse may have elective rights to a portion of his or her spouse’s estate if they remain married at death and the deceased spouse has failed to provide for his or her surviving spouse. Additionally, if you have children from different marriages or partners, estate planning is even more critical to ensure that your children from previous marriages or partners are effectively provided for in the estate plan.
Guardians of Your Minor Children
One of the important provisions in a Will is the ability to designate a guardian of minor children. A guardian will take legal custody and responsibility of your minor children in the event that both natural parents die during the child’s minority. Therefore, it is highly recommended that any new parent execute a Will to designate a guardian of his or her minor children. Within your Will, you may also request other guidelines for your guardians to follow while raising your minor children.
If a guardian is not designated by Will, the court will need to find and appoint a guardian, who may not be your first choice. Additionally, appointing a guardian through the court can accumulate unnecessary expense and delay in your minor children’s transition into their new home.
If you die without a Will, then the state laws of intestacy control, which typically means that your spouse (if any) and nearest heirs will inherit your estate. If this is not your intention, and you wish to provide for friends, charities, significant others, and pets upon your death, then a Will is likely needed.
Additionally, a Will or trust may be necessary for special circumstances, such as having a child or family member with special needs, supporting an elderly parent who qualifies for Medicare, or providing for spendthrift beneficiaries. Each of these special circumstances require estate planning to avoid dire consequences that may occur when having funds are transferred outright to beneficiaries with these special circumstances.
If you wish to streamline the probate and administration process of your estate, then an estate plan is necessary. Your estate plan can be prepared to effectively minimize the expense, delay, and loss of privacy of the probate process, typically by establishing a living revocable trust in addition to a Will. A living revocable trust is a trust that can be funded during your lifetime and is controlled by you prior to death. Assets in a living revocable trust do not pass under your Will, thereby avoiding the necessity of the probate process.
One of the first steps in the probate process is filing the Will with the appropriate court. However, once filed, the Will becomes public record that anyone can access. The probate process varies from state to state, and courts that are backed up can delay the process of admitting a Will to probate and appointing an executor or personal representative to manage and distribute the assets of the estate. In fact, on average, an uncontested probate in some New York Surrogate’s Courts can take up to a year.
In addition to delays, probate fees can accumulate quickly, even in cases that do not involve any conflict, which ultimately cuts into the assets of estate. If your Will is contested, this will delay the probate process and substantially increase legal fees.
If you wish to protect your assets or assets given to your beneficiary(ies), having an estate plan in place or updating it accordingly may accomplish these goals as well.
If you have significant assets or expect to acquire significant assets, a conversation with your estate planning attorney is essential to ensure that tax planning is effectively utilized. As of 2023, the federal gift tax annual exclusion amount is $17,000 per recipient, and the federal gift/estate tax exemption amount and generation-skipping transfer tax exemption amount is $12,920,000 per individual. Federal gift/estate tax is imposed on the transfer of assets in excess of the exemption amount at a rate of 40 percent. Under current law, these exemption amounts will continue to increase for inflation annually through 2025 and, again under current law, would be reduced by approximately 50 percent on January 1, 2026. Of course, these laws may change between now and 2026 depending on the composition of Congress and the executive branch, especially after the 2024 election.
In addition to federal exemption amounts, some states impose their own state estate tax and provide their own exemption from such tax. For instance, in New York, the state imposes an estate tax at the top marginal rate of 16 percent and estate tax exemption amount in 2023 is $6,580,000 per individual. However, New York’s state estate tax is a “cliff” tax, which means that upon the death of an individual domiciled in New York, such individual’s entire estate may be subject to New York state estate tax if the individual’s taxable estate exceeds the New York state estate tax exemption amount by any amount (even by one dollar).
In connection with federal and state estate tax planning, it is recommended to contact your estate planning attorney well before January 1, 2026, to ensure that you capture your exemption amounts prior to such date, if possible.
Moving to Another State
If you are considering relocating or retiring to a new state, discussing how your change of residency will affect your estate plan with your estate planning attorney may be necessary. When you move to a new state, although your ancillary documents in your old state will still be valid, it may be prudent to prepare ancillary documents for the new state. Having ancillary documents prepared in accordance with the laws of your new state will reduce any push back that financial or medical institutions may have upon reviewing the documents you or your agent provide them.
Additionally, when you move to another state, you may be subjecting yourself to a new state estate tax law. Again, speaking with your estate planning attorney is critical to ensure that your tax planning is utilized effectively. You may also need to find a new estate planning attorney in your new state since estate planning and licenses to practice law are state specific.
If you do not already have an estate plan in place, hitting this age bracket is your sign (and reminder) to have a conversation with an estate planning attorney. The milestones and life events mentioned previously also apply to your 60s and beyond. If you already have an estate plan in place, please ensure that your plan is up to date and that major life events have been communicated to your estate planning attorney.
Estate planning is one of the most important things you can do to protect yourself, your loved ones, and your future. The implementation of a Will or trust can go a long way in ensuring your wishes are followed after your death. When you approach one of the above-mentioned milestones or life events, it is a good idea to begin considering your options. As life is unpredictable and unexpected, your neighborhood estate planning attorney is gently encouraging you not to wait until time is up.