By Janelle Haggadone
and Rebecca K. Wrock
If you read the title and thought, millennials and estate planning don't belong in the same sentence, you wouldn't be alone. After all, a common misconception is that estate planning is only for the ultra-wealthy, those with major tax concerns, or, let's face it, older people.
Between their student loan debt and their delaying of marriage, home ownership and having children, you'd be forgiven for thinking that millennials aren't ready to consider this important tool for taking care of themselves and their families.
Consider, though, that all millennials are now legal adults, and whether single or married, whether or not a parent (of children or of pets), whether the owner of assets, debts, or more likely a combination, the bottom line is that there are basic documents that every legal adult should have. Those millennials who do have children, pets, student loan debt, and certain assets and goals often require additional planning.
Maybe you're a millennial who is curious about taking control of your family's future. Maybe you're the parent or grandparent of a millennial who knows the importance of estate planning and wants to encourage the millennial in your life to not overlook this important area. Maybe you're a Baby Boomer or a Gen X-er who hasn't yet done your own planning and you're thinking it's time to get your multi-generational family's affairs in order. No matter your situation or stage in life, we hope you find the following information valuable.
Millennials Need a Durable Power of Attorney
Legal adults, no matter how young, need a Durable Power of Attorney and a Patient Advocate Designation and Living Will. A Durable Power of Attorney names an agent to act on your behalf with respect to financial and other decisions in the event of your legal incapacity. A Patient Advocate Designation and Living Will spells out end-of-life wishes and names a patient advocate to make medical decisions on your behalf if you become unable to make your own.
Millennials, when you become a legal adult, your parents no longer have this legal role; if you haven't named an agent, a probate court proceeding can be required before someone is able to act on your behalf. Parents of millennials, including college aged adult children, you will want to ensure that your child has these legal documents in place. You may be trying to do something as simple as get vaccine records for your child, and the doctor's office won't find your argument that you were physically present for every vaccine to be compelling. More often, the need for these documents doesn't become apparent until there is an emergency and your adult child is no longer able to execute the document.
Millennials May Need a Trust and/or a Last Will and Testament
The need for testamentary documents will depend upon the extent of your assets, the type of assets involved and your goals for those assets. For example, if all assets can be transferred via joint ownership, deed, or beneficiary designation, such as a bank account, these documents may not be essential. However, the need for these documents should be assessed with your estate planning attorney, as many common estate planning goals can only be accomplished with a trust. Michigan's intestacy statute provides a default distribution plan for those who don't have an estate plan, but that may not be appropriate for many types of modern families that exist today.
Millennials Need a Plan for their Digital Assets
Millennials grew up online and are the first generation to be considered "digital natives." From social media and blogs to e-mail, online banking, and cloud-stored photos, it's important to take an inventory of your online presence so your wishes can be honored. For example, some people like the idea of having their Facebook page memorialized while others cringe at the thought of being reminded of someone's birthday after they have passed on; if you don't make your preferences known, someone else will have to guess at what you would have wanted.
No matter the digital asset, it's important to keep a secure list of user names and passwords with a corresponding instruction for the account, or utilize a reputable service to do so. We need passwords for everything, and all of them have different criteria and need to be updated at different intervals if we struggle to keep track of our own passwords, how will anyone else be able to do it for us?
Finally, it's important to note that Michigan's Fiduciary Access to Digital Assets Act requires that an agent be given specific powers to handle digital assets. Without those powers, the agent can't access certain types of digital assets, even with a court order.
Talk to your estate planning attorney about who should manage your online presence after death or monitor it during incapacity, what level of access you want your agent to have, and how any "online tools" such as Facebook's Legacy Contact or Google's Inactive Account Manager will impact your estate planning instructions.
For Millennials with Children
In addition to the above, anyone with minor children needs to name a guardian for their children in the event of the death or incapacity of both parents. The guardian is the person with whom the children will live. A conservator, which is the person who will manage any assets for the children that are not "funded" to a trust, should also be nominated; though if a trust is completely funded as intended, the trustee will manage all of the financial assets for the children instead.
If you have specific ideas as to how an inheritance should be spent and want to place restrictions on assets left to children, a trust is the proper vehicle to accomplish those goals. Common goals include financing education (so children will not experience the often crippling student loan debt experienced by many millennial parents), protecting funds from use until children are old enough to make wise financial decisions, and protecting funds from children's creditors (including future ex-spouses). Families might also consider keeping the trust assets in one common fund to benefit all of the children until the youngest child reaches a certain age or earns a degree, to more closely resemble how family finances would have been handled had the parents continued to live. Depending on your goals and assets, life insurance coverage also should be reviewed for sufficiency.
For Millennials without Children
Your priorities for estate planning will likely be very different if you do not have children. You may be less concerned with ensuring an inheritance in favor of prioritizing the best possible care and comfort for you and, if married or in a committed relationship, your spouse/significant other (and you may have greater assets to pay for that care because you don't have the expenses associated with children). You may use your extra spending money on experiences like adventurous travel, which can be riskier and provide another good reason to have your affairs in order. You might also prioritize planning for the future of any pets who may outlive you, charitable goals, and/or financially helping nieces and nephews or other relatives.
For Millennials with Pets
Millennials have adopted more pets than any prior generation and generally consider them to be members of the famil. If you have children, you may want to ensure that a family pet stays with your children, providing continuity for both the children and the pet. If you don't have children, you may prioritize securing your pet's future above other estate planning goals. While pets are property under the law, a pet trust - where a pet is treated as a beneficiary and not as property to be distributed - can be an important component of your estate plan. Without a legal plan for your pet, a cherished animal could end up with an unintended caregiver, in a shelter, or euthanized. The same result can happen if you plan only with a will, because there is no legal mechanism to care for the pet during the time period between your death and when the probate estate is opened, and distribution ultimately decided by the judge.
For Millennials with Student Loans
Knowing the differences between federal and private student loans is imperative. Most notably, federal student loans are generally forgiven upon death whereas private lenders can, and generally will, pursue an estate for amounts owed by deceased borrowers.
Millennials commonly wonder whether they should refinance federal loans into private loans. There are many factors to consider, such as interest subsidies and possible forgiveness (but often with income tax consequences) in the case of federal loans, paired with interest rates that are often lower in the case of private loans.
Before refinancing your federal student loans into private ones, consider the cost of the extra life insurance you will need to purchase to cover the debt, and if you have already refinanced, be sure that your insurance coverage is adequate so that amounts intended for your family do not instead pay back creditors. When planning for federal student loan forgiveness, remember to account for any associated cancellation of debt income and to purchase adequate insurance to cover the anticipated tax burden. The income tax on cancellation of debt income regarding federal student loans forgiven due to death was eliminated by the 2017 Tax Cuts and Jobs Act, but this change is set to expire at the end of 2025 unless extended by Congress.
Similarly, consider any federal interest subsidies that may be available before refinancing. In some cases, the offset of the federal interest subsidy combined with the cost of the additional life insurance needed to cover the private loan debt make refinancing a disadvantageous move.
In all cases, be sure to discuss the extent and type of your student loan debt and your repayment plan with your estate planning attorney. Planning for federal student loans is notoriously difficult because there's a moving target: the rules surrounding forgiveness, associated income tax consequences, repayment plans and interest subsidies can be changed at any time by any administration, and we don't know what future tax brackets will look like. Until a borrower's loans are actually forgiven or paid off, as the case may be, the rules may be changed "in the middle of the game," which can make planning very dynamic. It's imperative to monitor the laws surrounding student loans and how they may affect repayment options, forgiveness options, and associated income tax consequences. It's also a good idea to discuss your options for repayment plans and refinancing with a financial advisor who understands this planning landscape.
For Millennials Who Want to Make a Social Impact
Millennials want to make a difference; whether that has been your perception or not, statistics regularly confirm this. If you are a socially conscious millennial, discuss your social impact goals with your estate planning attorney. From establishing nonprofit organizations to directing that trust assets be invested in favorite causes, from arranging for environmentally-friendly disposition of your body to benefitting favorite charities with life insurance proceeds, your estate planning attorney will be able to make both standard and creative recommendations on how you can accomplish philanthropic goals in your estate planning, even if you do not feel you currently have the resources to make a plan for an impactful gift.
Millennials Want to be Involved and Understood
Millennials value advisors who involve them in planning and decision-making, who communicate quickly and effectively in convenient mediums like e-mail and texts, and who understand not only their needs and concerns, but their generational and individual values and goals. Millennials interested in learning more about how estate planning can benefit you and your loved ones should contact an estate planning attorney who understands millennials and who has the experience to help millennials achieve their goals.
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Janelle Haggadone and Rebecca Wrock are members of Varnum's Estate Planning Team. They work with a variety of clients and addressed Estate Planning for Millennials in a recent webinar.
Published: Fri, Oct 11, 2019
