If you're young, you may not think you need an estate plan — especially when you're at a point in life where you're dealing with student loan debt and just starting to save for long-term goals like retirement.
But everyone should have a contingency plan in place in the event they become incapacitated or die, says Chas Rampenthal, head of industry relations at LegalZoom. "The term [estate plan] smacks of wealth and privilege, but put the lingo aside for a second," he says. "If something happens to you, do you want to tell people what your wishes are, do you want them to guess, or do you want the state to decide?"
If you don't want your loved ones or the courts trying to make decisions on your behalf, then you need some form of estate planning. And that doesn't mean having a high-priced lawyer on retainer. Depending on your financial situation, you may be able to create a plan for little to no cost, and in doing so, make life easier for your family should something go wrong.
Estate plans aren't one-size-fits-all. For one thing, estate laws vary from state-to-state. And as a general rule, as your financial life grows more complex (when you get married, buy a home, have children, or accumulate significant assets) the more involved your estate plan will need to be.
But no matter where you live, or what your financial picture looks like, you should consider getting your estate plan started with these four essential tools.
A will is exactly what you think it is: a document that outlines your wishes for how you want things to happen after you die. A standard will indicates how you want your possessions divvied up between individuals or organizations, and who gets guardianship of your children in the case that you and the other parent both pass away. It also names an individual, called the executor, who makes sure your wishes get carried out.
Only about 16% of Americans between the ages of 18 and 34 have a will, according to a recent survey from Caring.com, with the largest portion of respondents saying they hadn't drafted a will because they simply hadn't gotten around to it. "A lot of young people don't do it because they have trouble making such a big decision," says Sharon Duncan, a certified financial planner at Selah Financial Services in Friendswood, Texas. "But a will can be updated and changed at any time."
"Everyone should have a will," she adds. "Should something happen to you, not having one can create a mess for the people who have to settle all of your paperwork."
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That's because when you die without a will, your assets are distributed according to your state's rules, known as intestacy laws, which may run counter to your wishes or your loved ones' expectations.
Making your wishes known can head off family fights, and even expensive legal battles, before they happen, says Duncan. "Say you have a child, and Mom and Dad die in a car accident. Now there could be a fight over who the kids go to," she says. "Instead, you have a document that says, 'If we die, we want Bob and Sue to raise the kids.'"
You can purchase and fill out a basic will (and the other documents mentioned below) online or through an app for less than $100, though experts say it may be worth consulting with a local lawyer who's familiar with your state's inheritance rules.
"The problem with any sort of online template is that it's not tailored to your personal situation, and you don't have the benefit of an experienced attorney to help you understand the implications of the plan and guide you in your decision-making," says Laura Stone, founding partner at Birchstone Moore, a Washington, D.C., boutique law firm specializing in estate planning. "It's better than nothing, but if you want to get your financial house in order, I wouldn't rely on that."
Not every facet of estate planning is quite as grim as dealing with your own mortality. In fact, most estate planning experts say you need a few documents in your estate plan that take effect while you're alive.
One is a financial power of attorney, a document that allows you to appoint someone you trust to make financial decisions on your behalf in the case that you're not able to do so on your own. Depending on the kind of power of attorney you set up, the person you appoint, known as your "agent" in many states, can make decisions on your behalf if, say, you're out of the country and unreachable, or you fall ill or have an accident.
Having such a document in place ensures that your loved ones can keep your finances running smoothly by paying bills you owe on time or filing your taxes. "If you become incapacitated, without a durable financial power of attorney, your family members would have to go to court and get a guardian named, which results in unnecessary costs and court oversight," Stone says.
You'll need a similar set of documents (which in some states may be combined under one document) to delegate medical decisions in the event that you can't make them for yourself. A durable power of attorney for health care, also known as a health-care proxy, gives your agent the authority to allow your doctor to give or withhold medical treatments and procedures.
Depending on which state you live in, this document may be combined with a living will or advance directive, which indicates your wishes in case you're terminally ill or in a permanently vegetative state and unable to communicate.
"It could be that you don't want to be put on feeding tubes or respirators if you hit a certain condition," Stone says. "If you want to control those types of decisions, you need to execute an advance directive. Otherwise, you can have a situation where family members are fighting."
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Even if you don't have a full-fledged estate plan, you can still make sure some of your assets are slated to go where you want them to go, says Eric Bond, president of Bond Wealth Management in Long Beach, California. "Even if you just have a retirement account and a life insurance policy through work, having an estate plan can be making sure your beneficiaries are set up properly."
Why that's so important: The beneficiaries listed on certain accounts trump even what's written in your will, if you have one. So doing this right means not only making sure you name a beneficiary, but also keeping those selections up to date to make sure your assets transfer to your intended recipients.
As you pull your estate plan together, to make life easier on your loved ones, collect all of your pertinent financial information in one spot.
"Put your last checking account statement, 401(k) statement, credit card statement, cellphone bill — whatever bills you pay — in a folder," says Bond. "Do it yearly, and God forbid if something happens, your parents will go to that folder, and they know to deactivate the credit card, handle the Verizon bill, and who to call about the car loan."
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