Most people associate estate planning with elderly people; however, it is not just people with kids and retirement funds that need to plan for their future. Young adults, especially with student loans, should start establishing a plan today. When you’re young and in debt, estate planning is just as important.
The future is unpredictable, and there is no better time than now to start educating yourself on how to prepare. Utilizing different estate planning tools like powers of attorney (POA), wills, and health care proxies will help ease your mind, protecting your loved ones and financial future.
The Financial Reality: What Happens to Student Loans After Death?
Approximately 65% of students earning their bachelor’s degree take out student loans. That means more than half of all students graduate with debt—often totaling tens or even hundreds of thousands of dollars. It's a significant financial burden that should be addressed through proper estate planning to ensure your family isn’t left responsible for it after your passing.
If you take out federal loans, your debt dies with you, meaning that your family members will not be responsible for it. You must have your death certificate submitted to make sure your debt gets discharged. Private student loans, on the other hand, are not always discharged upon death. If you had a family member co-sign your loan, the responsibility of repayment would fall on them meaning, not only would your family be grieving you, they would also gain a financial responsibility that they most likely didn’t expect. Your debt is not just your issue. If you do not properly plan, it may fall onto others, causing serious financial problems and stress.
Protecting Your Health and Your Future with a Health Care Proxy
Having a health care proxy means that you appoint someone you trust to make medical decisions on your behalf if you are incapacitated, whether that be due to a mental illness or a medical emergency. For example, let’s say you are hospitalized for a stroke. You must have someone you trust who is able to show up and advocate for you, making decisions that reflect your wishes. If you do not plan for a situation like this, your care may be delayed while the court intervenes to appoint a temporary guardian. This could not only severely impact your health and care, but also could result in someone representing you who isn’t in your best interest.
Imagine you are in this situation as a recent graduate carrying a lot of debt. These decisions about your care need to be made quickly and effectively, as they could greatly impact your financial future. Treatments may be extremely costly; however, not being prepared for such a situation causes delays and complications, further increasing the medical costs. You are already in a stressful time as you pay off your loans, you don’t want to make things even more complicated simply because you didn’t plan ahead. Naming someone you trust as your health care proxy makes the world of a difference, as you have a decision-maker ready to act in your best interest.
Managing Finances During a Crisis with a Power of Attorney (POA)
A POA allows you to have someone who manages your finances if you are incapacitated and unable to do so. They may handle your bills, look over your bank accounts, and deal with your rent or mortgage payments. If you had an accident and are now incapacitated, your loan payments may still be due. Having a POA to keep track of these payments will prevent missed payments and, therefore, avoid putting your co-signers at risk. Additionally, your POA can contact your loan servicer to request a payment deferment due to your circumstances. Without this support, you may incur late fees, further worsening your financial situation.
Why Every Young Adult Needs a Will
A will, a document that outlines how your assets will be distributed after your death, is the most common tool used in estate planning. In order to establish a will, you will also need to appoint an executor, who is responsible for handling your finances and settling your debts. Even though you’re young and may not believe a will is important, having debt makes it crucial that you plan for the unpredictable future. Having an executor allows your debt to be settled in a legal way that aligns with your wishes. You don’t want to pass without a will, as this results in the state deciding how your assets are distributed and how your debt is handled. A will protects your loved ones from confusion and stress during an already difficult time.
Life Insurance: A Smart Move to Protect Your Co-Signer
Another effective option to consider if you have student loans is purchasing a term life insurance policy. For less than $20 a month, it can provide peace of mind by covering your loan balance in the event of your passing. This is an effective way to protect your co-signer from potential financial strain. Be sure to name your co-signer as the beneficiary so they can receive the insurance payout and use it to repay the loans. Taking this step is a financially responsible decision that helps ensure your debt doesn’t become a burden on your loved ones.
Don’t Keep It a Secret: Communicating Your Estate Plan to Family
An overlooked part of this process is communication—you must have open and healthy conversations with your family. Without this, your family members will be lost and confused about what to do in a state of emergency. Even if you have all of these documents in place, you aren’t preventing complications unless you share your wishes with your loved ones.
You must tell your family where your documents are stored, who you named as your decision-makers, and how you wish for your decisions to be made. This helps your family in the future, making them feel more confident in advocating on your behalf, knowing that they are doing what aligns with your wishes. Clear communication now will make things far easier for your family in the future.
Take Action Now: Secure Your Future and Protect Your Loved Ones
Now that you understand your options and recognize the importance of estate planning, it’s essential to consult with a professional as soon as possible. Properly establishing and organizing these documents will help ensure that your debt causes as little stress as possible for your loved ones.
Call (718) 333–2394 today to speak with the Law Office of Inna Fershteyn to get started. You never know what could happen, so the least you can do is be prepared. This estate planning doesn’t just protect your assets, but shields your loved ones from unnecessary stress and chaos as they navigate the unexpected.