Thinking about your demise in your twenties is not something you want to dwell upon. What happens to your assets, regardless of how many or little you have, should be addressed in some form sooner rather than later.
It really does not matter how much money you have, it is more about decision making abilities for your loved ones should something happen to you. Even if you have a small amount of money, you do not want to have your family be subject to the probate process for your life savings.
Your estate plan does not have to be anything long and involved. Taking care of a few documents now could save your family from having to address your financial issues in addition to the devastating situation they are already facing.
Durable Power of Attorney and Health Care Directive
The first documents that need to be created are a durable power of attorney and a health care directive. The person named in the power of attorney is allowed to make financial and health care decisions on your behalf in the event you cannot. A durable power of attorney can also be used for students who study abroad, allowing the person named (frequently a parent) to help with financial matters or taxes while the student is away.
Beneficiaries and Wills
After you get your first ‘real’ job, you may have an opportunity to sign up for life insurance and/or a 401(k) plan. You will be asked to name a beneficiary on each account. This person will receive the death benefit and assets if something happens to you.
Consider making a will. If you die without one, the court will decide who gets your assets. If you are not married but have had a long-term relationship with someone, that person will not have any legal rights to your things without the creation of a will.
Student Loan Debt
Not only do you need to look at your assets, but also what happens to any outstanding debt if you die, most specifically, student loans?
- Federal student loans — if you leave federal student loan debt when you die, the loans in your name are all discharged. Your survivors will need to provide a certified death certificate to the agency servicing the loan.
- Parent Plus Loans – These are also eligible to be discharged upon death because they are federal loans. If either the parent or the student dies, the loan is discharged. However, in this case there are tax implications for a discharged debt as the parent will receive a 1099-C from the IRS for the remaining balance of the loan and that amount is taxable.
- Private student loans — Some lenders offer a death discharge, but some do not. The lender may go after your estate, however, if the loans are only in your name, your relatives usually are not liable for the debt.
- Cosigner on a student loan — Many private student loans require a cosigner, in which case they may be legally responsible for the loan if you pass away. In some instances, the bank can call in the balance of the loan after you die. If you have made loan repayments on time for a certain amount of time, you may be able to request a cosigner release. It may be advantageous for a parent who has co-signed a student loan to purchase a life insurance policy in their child’s name for the amount of the loan to help cover the repayment of the loans.
It is difficult to think about your own demise as such a young age. However, these steps can bring peace of mind about such an unpleasant topic and let you focus on the business of living. Speak with an experienced attorney such as the Trust Lawyer Danbury, CT locals turn to.
Thanks to authors at Sweeney Legal for their insight into Estate Planning Law.