Estate Planning for Young Professionals

By Andrew Harvey AIF®, CPFA™

I’ve written in the past about how it’s never too early for a young professional to engage in the financial planning process. Similarly, outlining the key aspects of your estate plan early in your career and family life can help ensure that your wishes will be respected and ease the stress on your executor and surviving family members if the unthinkable should happen.

For this month’s blog post, I’m laying out the key topics that we work to address with members of our SYFI Program for young professionals as they begin to formalize and implement their estate plan as part of our overall plans for their long-term financial health and well-being.

Who Needs a Will, Anyway?

The short answer? Everyone. my youngest clients often tell me “my estate isn’t that complicated right now, so I don’t think I need to create a will.” But having a will is the critical first step in ensuring your assets and other property go to whom you want them to if you pass away. Without one, all your property will pass to your heirs subject to your state’s probate laws, and dying intestate almost always prolongs the process of settling your estate because it causes the court to have to work to appoint your executor, since you did not have one designated in a will. Probate can be expensive, as can probate attorneys, but the real reason for having a will (even with a “simple” estate) is that without one you sacrifice any level of control over your estate to your local state government and its appointed representatives.

Know Your State’s Estate and Inheritance Tax Laws

A key planning consideration, especially with Life Insurance, is that many states have their own Estate or Inheritance Tax, often with substantially lower thresholds than the federal Estate Tax exemption (currently $13.61 million per individual in 2024). The state of Washington, for instance, taxes estates worth more than $2.19 million at an initial rate of 10%, increasing up to 20% depending on the size of the overall estate. In total, twelve states have their own separate estate tax law, while six states impose inheritance taxes. For young families planning for life insurance, knowledge of their local laws plays a critical role in determining whether an Irrevocable Life Insurance Trust (see below) is appropriate for their situation, as well as how early they will need to engage more deeply with strategic estate planning as part of their overall wealth transfer strategy.

Consider a Revocable Living Trust

A Revocable Living Trust can be an important step in protecting your privacy and reducing probate administration costs, since assets held in a trust do not pass through probate. These trusts can also help in the even of incapacity, since the capability to appoint a successor trustee can ease the process of establishing your caretaker and empowering them to help control your assets in your best interest.

It is important to note that due to the Revocable nature of the trust, the assets are still considered your property for tax purposes and claims by creditors. There are also costs associated with establishing and maintaining a Revocable Living Trust, but this is a powerful way to have your estate plan well in order during your lifetime.

Have your Spouse Own Your Life Insurance Policy, or Consider an Irrevocable Life Insurance Trust (ILIT)

It is widely known that life insurance proceeds pass tax-free to the policy’s beneficiaries. Less well-known, however, is that life insurance proceeds may be included in your estate if you are both the owner and insured life on the contract. For residents in states with lower estate tax thresholds, this can present a challenge in attempting to minimize taxation at death. Having your spouse as the owner on your life insurance policy avoids this problem, since the proceeds of the contract will not be considered part of your estate. There is an important caveat this simpler solution: you should avoid having anyone other than your spouse be named as the beneficiary of the insurance policy. If the proceeds pass to a third party (including your children), there may be gift tax implications for the surviving spouse.

An Irrevocable Life Insurance Trust (ILIT) is a trust that owns a life insurance policy on the insured. Money can be given to the trust to help pay the premiums tax-free (subject to the annual gift tax exclusion amount–$18,000 per year in 2024), or additional funds can be placed in the trust to make ongoing premium payments. Like the Revocable Living Trust mentioned above, these trusts have startup and ongoing administrative costs, but they allow the proceeds of your insurance policy (or policies) to pass to your beneficiaries free of estate and gift tax.

Springing vs. Durable Powers of Attorney

Being married does not automatically empower your spouse to make medical decisions on your behalf in the event of incapacity. It is important to have conversations around Advance Health Directives and formally establishing your partner (or anyone else) as your Medical Power of Attorney in case you are no longer able to communicate your wishes regarding your healthcare.

Many people elect to utilize a Springing Power of Attorney, which only becomes effective once someone has been formally declared incapable of making or communicating their own decisions. Unfortunately, incapacity is a very broad and nebulous definition, and there can be significant delays in the administrative process of being officially declared incapacitated. Therefore, a Durable Power of Attorney may be advisable for people with strong wishes regarding their healthcare or life plans if they become unable to care for themselves or communicate. These powers, along with written documents expressing your wishes, should be kept with both your financial advisor and your estate planning attorney and reevaluated every few years.

You can also establish Powers of Attorney for your assets, to help oversee your affairs if you become incapacitated. It should be noted that medical and financial Powers of Attorney must be specifically granted (i.e. just because someone is your medical Power of Attorney, they are not necessarily your financial one), and may be “limited” (restricting their authority to specifically named responsibilities) or “general” (giving your Power of Attorney broad authority to act on your behalf). You should discuss all of these items thoroughly with your advisor, your partner or proposed Power of Attorney, and your estate planning professional.

Keeping Things Consistent

It is important to keep close track of your estate plan and how all of your wishes and beneficiary designations are designed. In the event that a discrepancy arises (e.g. a will designates Child A as the beneficiary of a trust, but the actual trust document designated Child B as the beneficiary), it can introduce complications to an otherwise well-laid plan.

As we proceed throughout our lives, many things change, so it is important to ensure your plan is aligned not only with your wishes, but from element to element. We recommend our clients review their estate plan at least once every three years, or thoroughly any time they go through a major life event.

Closing Thoughts

I think of estate planning a little bit like doing the dishes. It may not be the worst thing in the world to leave a few plates in the sink, but wait too long and you’ll have a fair amount of work on your hands. Young professionals can do themselves a world of good by engaging in the planning process early, making it easier to make tweaks and adjustments as time goes by. If you or someone you know wants to begin the estate planning process, or discuss financial planning more broadly and isn’t where to start. Please reach out to me or a member of my team. We often help our clients design the broad strategies of their estate plan and work closely with a number of estate planning professionals.

Andrew Harvey, AIF®, CPFA™ is the Vice President of Operations and a Financial Advisor at Seattle-based Opus 111 Group. He created Opus 111 Group’s SYFI (Secure Your Financial Independence) Program for young investors in 2022 and works in Opus’ Retirement Plan Consulting division. In his spare time, he plays the Irish sports of hurling and Gaelic football for USGAA side Tacoma Rangers. Andrew lives in Kent, Washington with his wife Lauren and their cats, Bella and Leeloo.

The information in this article is for educational purposes only and should not be construed as specific legal or financial advice. Always consult with an attorney before making decisions regarding legal matters, especially regarding establishing a trust.