Many of us think of estate planning as something only seniors must do. The truth is, it’s essential for every adult with a spouse, child or business, regardless of age, to have solid plans in place. People in their 20s and 30s are in high gear. They may marry, start a family and buy a home. Some may start or buy a business. It’s all about getting started in life and nobody wants to think about taking their foot off the accelerator.
But even those just starting out have important people and assets to protect.
Having children
For example, if a young couple is killed in an accident, their young children must be raised by someone else. If the parents haven’t made wills, they have lost the opportunity to choose the new guardians of their children, and to have the children raised together in one family with someone they know. Most parents, confronted with the choice, would rather not have extended family members dispute guardianship in court. And certainly not many would want to risk the children becoming wards of the government.
Using a will, the parents can also make provision for money to flow from their estates to the guardians of the children to help pay for raising the children. This could be vitally important if two or three children are left behind to join a different family that already has two or three children of its own. Without money from the estate, the new family could suffer financial consequences by trying to raise all of the children on its own resources.
Young parents also need to consider what they are leaving behind for their children. Assuming there are funds to be inherited, each child will each receive his or her share on their 18th birthday. Many parents will agree that 18 is too young for a person to inherit a significant amount of money, for a number of reasons. By making a will, the parents can stipulate a later age, or can choose to dole the funds out in staggered payments over a number of years, to help the child make the most of his or her inheritance.
Buying a home
Even young people without children should plan ahead for a premature death that leaves one of them widowed. As mentioned, a will is essential - but estate planning doesn’t stop there. Some assets are not governed by a will, namely jointly held assets and assets with designated beneficiaries. It’s important that everything works together.
One of the largest purchases a young couple will make is a family home. They must understand the legal effect of a jointly owned home as opposed to a home held as tenants-in-common. An incorrect title can have a devastating effect if it causes a widowed person to lose his or her home as well.
Joint tenancy, which is by far the most common way that couples own their property, provides a right of survivorship to one owner when the other passes away. It keeps the house out of the estate; probate is not required for its transfer to the surviving owner. Tenancy-in-common doesn't provide a right of survivorship. The half of a house owned by a deceased tenant-in-common falls into the deceased's estate, where it's subject to creditors, claims and delays.
Saving for retirement
Couples often start contributing to RRSPs when they're young and they need to understand the legal, tax and financial effects of naming a beneficiary. They also need to consider who will be named as the beneficiary of life insurance policies. Leaving insurance proceeds directly to a spouse will have quite a different effect than leaving them to an estate, depending on what else is going on in that estate.
