At 16, you can drive a car. At 18, you can vote and serve in the military. And at 21, you can order a drink in a bar. But when is the right time to create an estate plan? When should you create the basic documents that will help you and your family make important decisions in the face of an unexpected life event?

While there isn’t a clear-cut answer provided by the state, federal HIPAA privacy regulations, which protect individuals’ private health information, say an “adult” is anyone 18 or older — meaning at 18, not even your parents can access your health information or make medical decisions for you in the event of an accident or illness, unless you allow them to.

There are many reasons to create a basic estate plan early on. Created in conjunction with an attorney, tax adviser and possibly a financial planner, a solid plan dictates things, such as which assets should be given to whom. Assets can include everything from bank accounts to real estate to your favorite watch.

Without a plan in place, state law will dictate how your assets are passed along, which typically means the inefficient process of being passed to family members following strict ordering rules and only after numerous filings with the local probate court.

A well-rounded estate plan also includes, as alluded to above, more than just assets or “wealth.” It also takes care of financial and medical decisions, such as giving named individuals access to your financial and medical records or the ability to make medical decisions on your behalf, should they need to.

Below is a checklist of essential components for a basic estate plan, one that all adults, regardless of age, should have in place:

• Will. A will expressly states your wishes for how you want your assets to pass. In addition to family members, you can add any friends or charitable organizations you wish to include. If you have children, this is also the place to name guardians. The probate court would still be involved to a certain degree, however, if a will is the only document you create.
• Healthcare Power of Attorney (POA). A healthcare POA gives a person of your choosing the power to make medical decisions on your behalf if you are deemed unable to do so for yourself. It also allows someone access those HIPAA-protected medical records.
• Living Will. A living will states your wishes regarding life support. Without this document, hospitals are required to administer life support to prolong your life, even if you are in a comatose or permanently vegetative state.
• Power of Attorney (POA). A POA designates someone to take care of your financial affairs if you are unable to do so yourself. The designee can sign important documents, such as checks, contracts, income tax returns and automobile titles. Typically, this power is not activated until you choose it to be, or if you are deemed incapacitated by one or more medical professionals.
• Beneficiary Forms. If you own a life insurance policy or a retirement account, make sure you name the beneficiaries properly. These assets pass according to your beneficiary designation, not based on instructions in your will.

The more assets you have, the more sophisticated your planning needs to be. You may need to use a trust to plan for the following situations:

1. Minors. Pass your assets to a trust for the benefit of your minor children. You will need to name a trustee and specify when and why the children can have access to the assets, such as at the age of 18 or to pay for education and medical expenses.
2. Special Needs Children. Fund a trust to provide financial support for a special needs child throughout his or her lifetime.
3. Second Marriage. Provide income to your surviving spouse while protecting the assets for your children from a previous marriage.

Another area of complexity, and opportunity, in estate planning is creating a plan for business assets. Some of the most common areas to address are listed below:

1. Business ownership through a revocable trust. Owning your business through a revocable trust allows you to avoid the public exposure of probate court reporting.
2. Emergency succession planning. Who will run the daily operations of the business if something unexpectedly happens to you? Who will be the decision maker?
3. Long-term succession planning. Are you grooming someone to eventually take over when you want to retire? Are there financial assets available for him or her to purchase the business or assets from your estate?
4. Liquidity/adequate insurance. Does the business have enough cash flow to continue if you are not available? The business may need key-man life insurance to provide sufficient liquidity.

Whether you are just starting out or are deciding what to do in your retirement years, once you have addressed the key needs in your basic estate plan, it is important to review and update it as your life changes. Events in your life will require you to revisit your planning, including marriage, divorce, having children, children reaching adulthood, and large increases or decreases in the value of your assets.

Careful monitoring of your plan over the years will ensure your wishes are administered as smoothly as possible and will take a significant burden off your loved ones during a difficult time.

Contact Alane Boffa at aboffa@cohencpa.com or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.