Beyond The Will

Too Young for an Estate Plan? Think Again

July 17, 2021


For young adults, the inevitable is typically not at the forefront when it comes to making future plans, precluding many from giving any thought to what may happen to their assets on death. In reality, all young adults should have some form of an estate plan in place.

Durable Powers of Attorney and Health Care Proxies

After turning 18, young adults should execute both a durable power of attorney and a health care proxy. This is particularly important for students who are going off to college. A durable power of attorney will appoint an attorney-in-fact (i.e., an agent) to make financial decisions in the event of incapacity. A health care proxy will appoint an agent to make health care decisions under the same circumstances.

In the event that a college student (or other young adult) is hospitalized, doctors will only communicate with a parent (or other individual) if a health care proxy is in effect naming such person as agent. Similarly, if a young adult is incapacitated and unable to make financial decisions, a parent (or other agent) will only be able to access accounts to pay bills and make deposits if a durable power of attorney is in place.


In addition to a durable power of attorney and health care proxy, young adults should consider putting a plan in place that determines the disposition of assets on death. If an individual dies without a will (known as dying “intestate”), assets will be distributed in accordance with the applicable probate law. In Massachusetts, when an unmarried individual dies without children, the individual’s assets will be distributed to their parents, if living; otherwise to their siblings, and otherwise to nieces and nephews. This disposition changes if an individual is married and/or has children.

If an individual dies testate (i.e., with a will), the same young adult could choose to have their assets distributed to their sibling who is inundated with student debt (as opposed to their parents who are enjoying retirement with a cocktail on the beach). Or, what if a young adult has two siblings – one who is competent and conscientious and the other who is reckless? If there is no will in place and the parents die, the individual’s assets would be divided equally between their two siblings when, in all likelihood, the individual would not want their sibling who struggles with rash decision making to have assets directly in hand.

A will also allows an individual to appoint a personal representative to administer their estate. Naming an individual in a will can minimize future disagreement among family members (such as divorced parents who each want to serve as the fiduciary of their child’s estate). The document is also important for single or married adults with children and allows a parent to name a guardian to care for minor children. This can be particularly important where the families of both parents are involved and seeking to have active involvement in such minor’s life.

Beneficiary Forms

Proper estate planning also involves updating beneficiary forms on life insurance policies and retirement accounts. If no beneficiary is named (or a named beneficiary is deceased and there is no contingent beneficiary), the life insurance policy death benefit and retirement account assets will flow through an individual’s estate and will need to be administered by a personal representative. If beneficiaries are named, such assets go directly to the named beneficiary, circumventing the probate process and potentially reducing estate administration costs.

The beneficiary of a retirement account also impacts the payout from such account. For example, if there is no beneficiary named (so the retirement account becomes part of the estate) or if an estate is named, the assets in the retirement account must be distributed within five years of the owner’s date of death – assuming the owner dies before taking required minimum distributions, which would be the case for a young adult. However, when other beneficiaries are named, such as a spouse, minor child, etc., the distribution periods may be extended.

There may also be unfavorable tax consequences if distributions from a retirement account are made to an estate. For example, for an estate, the top income tax bracket (37%) applies to taxable income over $13,050 in 2021.  In contrast, for a single individual, the top income tax bracket (37%) applies to taxable income over $523,600.

It may be easy to dismiss the need for an estate plan as a young adult. However, putting even a simple plan in place can help minimize potential issues down the road. Always consult with an experienced estate planner to make sure your intentions are correctly captured.

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