For many people, the reason to create an estate plan is primarily because of reaching a certain age. Whatever the age may be, the individual suddenly realizes someone at their age should have legal documents in place.
Although there is often a progression of complexity in estate planning, this progression generally follows stages in life rather than specific ages. These life stages can be broken up into four broad categories: young with limited assets, having young children, nearing retirement and post-retirement.
First, it should be noted everyone who has reached adulthood should have a legal plan in place. Without a valid estate plan, we lose our ability to determine who will manage our affairs and how any property we may acquire will be handled.
The first life stage includes younger individuals with limited assets. This often includes college students, early career and young married couples. These individuals either do not own real property or have little equity in the real property. They also do not have minor dependents who rely on them for support. Those in the first life stage need straight-forward, simple documents and often name a spouse or a parent as both fiduciary and beneficiary.
In this stage, lifetime planning documents are of primary importance, as distribution of assets is of less concern than provision during life in case of unexpected emergencies.
The second life stage includes those with minor or special needs dependents. While these individuals still must consider their own lifetime planning, they also must intentionally protect the needs of their dependents. Whether they own real property or not, whatever inheritance they leave to minor beneficiaries should be held in trust and both a guardian and a trustee should be nominated within the documents.
Because of the vulnerability of young beneficiaries, as well as the duration of probate, many people in the second life stage use revocable living trusts as their primary planning tool. Revocable trusts ensure property passes to the minor beneficiary in a way that provides for the ongoing care of the child until such age the individual chooses to release the full amount to the child. They also maintain privacy, as the inheritance passes outside of the public probate process, directly to the beneficiary.
The third life stage is somewhat broader and includes those without minor beneficiaries, but who have accumulated assets. This stage often encompasses individuals with adult children, those with no children and people nearing retirement age. Individuals in this stage often are most concerned with passing on assets to beneficiaries with the least amount of trouble. The primary type of asset, as well as the ongoing needs of beneficiaries, will determine the best planning strategy for this stage.
Those with special situations, such as fiscally irresponsible beneficiaries, multiple pieces of real estate, out-of-state property or concerns regarding the public nature of probate will utilize revocable living trusts. Individuals without real estate, and who have few, simple, non-dependent beneficiaries, may find that a simple last will and testament meets their planning needs.
The final life stage includes those who are concerned about the costs of long-term care needs. Although this can include individuals at any age, typically people begin thinking about care costs around the time of retirement. For this group, long-term care planning strategies are important to consider and, depending on the individual care expectations and assets, could involve one or more of a number of strategies.
Although irrevocable trusts are common for asset preservation, estate plans for this life stage also may include charitable remainder trusts, long-term care insurance, life insurance with chronic illness riders, Medicaid annuities or gifting strategies for preservation.
Although well-written estate planning documents should prepare for many unanticipated consequences, the plan itself must continue to evolve over each individual’s life. Review your estate plan periodically to make sure it fits your current life stage needs.