Estate planning often brings to mind images of older individuals preparing for the future of their substantial assets.

However, it's just as crucial for young adults to engage in this forward-thinking process.

Starting early with an estate plan not only prepares you for unexpected life events but also ensures your financial wishes are respected and your loved ones are taken care of in your absence.

This article delves into why and how young adults should approach estate planning, outlining the essential steps and considerations to secure their financial legacy.

Understanding Estate Planning

Estate planning involves creating a roadmap for managing your assets and responsibilities after your death or if you become incapacitated.

For young adults, this might seem premature, but it is a strategic move to manage financial risks and ensure your assets—no matter how minimal—are distributed according to your wishes.

Read more: Everyone Needs To Write A Will: Here's Why

Why Young Adults Need An Estate Plan

For young adults in India, setting up an estate plan is not just about distributing assets but about making thoughtful, legally sound provisions for both the expected and unexpected turns of life.

It ensures that your financial and familial wishes are respected and executed according to your own vision, providing peace of mind and security for both yourself and your loved ones.

Here's why you need an estate plan.

To Appoint Beneficiaries

In India, if you pass away without a Will, the distribution of your assets is governed by the succession laws pertinent to your religion or personal laws like the Hindu Succession Act, the Indian Succession Act (for Christians, Parsis, and others), or the Muslim Personal Law (Shariat).

These laws may not align with your personal wishes or the dynamics of your relationships.

By creating a Will, young adults have the autonomy to specify who should receive their assets, such as bank and retirement accounts, ensuring that their wishes are honored.

To Reduce Estate Taxes

While India does not currently impose estate tax, understanding the broader implications of potential taxes on your estate is crucial as you may have exposure outside of India.

Techniques such as setting up Trusts can be particularly beneficial.

Trusts can help manage and distribute assets efficiently, potentially mitigating other forms of taxation and keeping a larger portion of the estate within the family or intended Beneficiaries.

For Medical and Financial Directives

Estate planning transcends the mere allocation of assets. It includes critical directives that cover scenarios where you might be unable to make decisions due to incapacitation.

Instruments like a Power of Attorney allow you to appoint someone you trust to manage your financial affairs, while a Living Will can ensure that your medical treatment preferences are followed, adhering to your wishes in critical medical situations.

To Provide Family Security

For young adults with minor children, one of the most compelling reasons for estate planning is the ability to appoint Guardians.

Should anything happen to both parents, a legally binding estate plan that includes guardianship can ensure that your children are cared for by the individuals you trust most, in the manner you have approved.

This is not only a measure of security but also a crucial responsibility that protects the well-being of your children under unforeseen circumstances.

Key Components Of An Estate Plan For Young Adults

For young adults in India, creating an estate plan is not just an exercise for the wealthy; it's a fundamental part of managing your personal affairs and ensuring that your assets and responsibilities are handled according to your wishes, regardless of your age or health status.

This proactive approach not only secures your financial legacy but also provides clarity and support to your family during difficult times.

Will

In India, a Will is a crucial legal document that directs how to transfer assets that belong to you after your death.

It also nominates an Executor who will manage your estate, ensuring that your property, investments, and other assets go to specified Beneficiaries according to your wishes.

In the absence of a Will, the distribution of your assets will be handled according to the succession laws applicable to your religion, which may not align with your personal preferences.

Beneficiary Designations

Similar to global practices, in India, it's essential to designate Beneficiaries for financial instruments like life insurance policies, provident funds, and other retirement accounts.

Ensuring these are up-to-date can help in the smooth transfer of financial benefits directly to your nominated Beneficiaries without the need for probate, thus bypassing potentially lengthy legal processes.

Power of Attorney

This legal instrument allows you to appoint a trusted individual to manage your financial affairs if you become incapacitated.

This is particularly important in India where family members may need quick access to funds to manage day-to-day expenses or medical bills in case of emergencies.

Health Care Directive

Known in India primarily as a Living Will, this directive outlines your wishes regarding medical treatment in situations where you might be unable to make decisions due to incapacity.

It also allows you to appoint a healthcare proxy who can make decisions on your behalf, ensuring that your medical treatment aligns with your personal ethics and preferences.

Guardian Designations

For young adults with children, appointing a guardian in your estate plan is imperative.

This designation is legally binding and specifies who will care for your minor children if both parents pass away or are otherwise unable to take care of them.

This component is crucial to ensure that your children are cared for by someone you trust, in an environment that you approve of, should the worst occur.

The Estate Planning Process

Understanding and managing the estate planning process in India requires careful consideration of legal, financial, and personal factors.

With the right advice and a proactive approach, you can create a robust plan that secures your financial legacy and provides peace of mind for both you and your family.

This process not only ensures that your assets are distributed according to your wishes but also minimises the potential for disputes among heirs and reduces tax liabilities, thereby safeguarding your estate for future generations.

Inventory Your Assets

Begin your estate planning by creating a comprehensive list of all your assets.

This should include details about bank accounts (current and savings accounts), shares and mutual funds, real estate holdings, valuable personal property like jewellery, vehicles, and any significant digital assets.

Accurately assessing what you own is the first step in effective estate planning.

Consult Professionals

It's essential to consult with professionals who specialise in estate planning in India.

This may include estate planners or an estate planning attorney who can provide legal guidance, financial advisors who can offer insights on financial implications, and tax consultants familiar with the Indian Income Tax laws.

These professionals can help navigate the complexities of estate laws which can vary significantly depending on your religion and the nature of the assets.

Create and Execute Documents

Once your plan is in place, you'll need to draft and execute the necessary legal documents.

This typically involves creating a Will, possibly setting up Trusts, and making other legal arrangements like a Power of Attorney and Living Will.

In India, execution of these documents generally requires the signatures of the person creating the estate plan (the Testator) and at least two Witnesses.

For some documents like a Will, while not mandatory, registration might be recommended for added legal robustness.

Review and Update Periodically

An estate plan is not a static document but a dynamic strategy that needs to reflect changes in your life and finances.

Significant life events such as marriage, the birth of a child, acquisition or disposal of a major asset, or substantial changes in your financial status should prompt a review of your estate plan.

In India, where family dynamics and financial situations can change rapidly, regular updates ensure that your estate planning documents remain aligned with your current wishes and legal standards.

Legal Considerations

Be aware of the specific legal considerations that apply in India, such as the different laws applicable to different religious communities under the Indian Succession Act, the Hindu Succession Act, and other personal laws.

Each set of statutes may influence how assets are handled, taxed, and transferred posthumously.

Legal and Financial Decisions

Retirement Planning

While young adults may feel that retirement is far off, starting early can significantly impact the value of their retirement funds.

Understanding how to utilise instruments like the Employees' Provident Fund (EPF), Public Provident Fund (PPF), and other pension schemes effectively can ensure a stable financial future.

Additionally, designating Beneficiaries for these accounts can avoid complications and delays in asset transfer after death.

Management of Business Assets

For young entrepreneurs, correctly handling business assets is crucial.

This involves making decisions about who will take over or manage the business in their absence.

Establishing a clear succession plan for business assets ensures continuity and can prevent potential disputes among surviving family members or business partners.

Legal Documentation

Creating and maintaining up-to-date legal documents such as a Will, a Power of Attorney for financial decisions, and Living Wills for medical decisions, are essential.

These documents should reflect the young adult’s wishes regarding asset distribution, management during incapacity, and medical decisions if they become unable to make those decisions themselves.

Proactive Approach

Lastly, young adults should adopt a proactive approach to updating their estate plans regularly as their financial situations and family dynamics evolve.

This includes revisiting and possibly revising legal documents following life events such as marriage, the birth of children, acquisition of significant assets, or starting a business.

The Bottom Line: How Yellow Can Help

Estate planning is a crucial step for young adults, providing not only peace of mind but also a clear directive on the management and distribution of their assets in various scenarios.

It protects your interests and those of your loved ones, ensuring that your financial and health-related wishes are followed. With the right guidance and a proactive approach, young adults can set up a robust estate plan that evolves along with their life’s milestones.

This approach ensures that young adults are well-prepared not just for the future, but for any unexpected turns their lives might take, safeguarding their assets and their family’s future.

Estate planning can be complex, especially when dealing with large estates or special circumstances. Consulting with experts in the field of estate planning attorneys can provide valuable guidance and peace of mind.

At Yellow, we are committed to helping you with all aspects of estate planning, including making a Will. You can create your Will from the comfort of your own home quickly and simply with the help of our app and webapp.

Our team of estate planning professionals, with more than 50 years of combined experience, can help you with your unique situation.

We provide end-to-end estate planning services, starting from creating a Will to making a Trust, Probate, obtaining succession and legal heir certificates, asset transfer services, and more.