The Benefits of Estate Planning in Your Prime

Ask those in their 50s whether they're in their prime and you may get a few raised eyebrows. But that relatively early age is the ideal time to get ahead of some of the more expensive aspects of aging.

"Because you become more susceptible to cognitive and physical impairment the longer you live, it's prudent to plan ahead while you're still of sound mind and body," says Austin Jarvis, director of trust, tax, and estate at the Schwab Center for Financial Research. "What's more, long-term care and life insurance become increasingly costly as you age, so it's best to apply for coverage while you're still young and healthy enough to qualify for better rates."

With that in mind, here are three elements of estate planning that benefit most from early action.

The likelihood that you will need another person to make financial and health care decisions for you increases as you get older. That's where powers of attorney (POAs) come in. Establishing two POAs—one for financial decisions and one for medical decisions—gives a trusted individual (or individuals) the authority to conduct broad legal and medical affairs on your behalf.

"Rules vary by state as to whether a spouse, next of kin, or partner can make decisions without any legal framework in place," Austin says, "so establishing POAs is the only way to ensure your wishes will be recognized."

When creating your POAs, you'll need to decide what form the authorization will take:

• A durable POA takes effect when the document is signed and remains in place until revoked or upon your death.
• A springing POA takes effect only if you become incapacitated and remains in effect until your incapacity ends or upon your death.

A springing POA might seem like the obvious choice, but it can create unintended roadblocks. 

"In an emergency situation, for example, your designated agent may need to prove that you are, in fact, incapacitated in order for the POA to be recognized, which can slow down their ability to make decisions," Austin says. "I generally suggest making all POAs durable for that reason."

According to the Administration for Community Living, today's 65-year-olds have a 70% chance of needing some type of long-term care in the future—the cost of which can severely erode their savings. For example, in 2021 the median annual costs of a home health aide and a private room in a nursing home were $61,776 and $108,405, respectively. "Even if you've built a sizable estate, a serious illness that requires dedicated care could drain your savings quickly," Austin says.

If you do decide to apply for long-term care insurance—perhaps because you have a family history of Alzheimer's, Parkinson's, or another long-term debilitative illness—Austin suggests doing so early. "Long-term care insurers are more likely to deny coverage if you've had any serious medical diagnoses, so you may want to purchase a policy well before you need it," he says.

The most cost-effective time to buy a policy generally is between the ages of 50 and 65, though earlier could make sense in some cases. While this could result in paying premiums for longer, the younger you are, the cheaper coverage tends to be—and any rate increases cannot be based on age or health status. In fact, for many long-term care policies, premiums remain locked in for the rest of your life.

"If you can afford the premiums in perpetuity, you could save significant money in the long run," Austin says. "Even those with the means to pay for long-term care out of pocket may opt for a policy to preserve their estates."

Term life insurance provides coverage for a fixed period, but for people with a high net worth, the years leading up to retirement might be the perfect time to consider a permanent policy.

"Permanent life insurance can help pay future estate taxes or solve for inheritance inequities, or even just boost the amount you're able to leave to your loved ones," Austin says. "By getting a policy early, your premiums easily could be one-third to one-half those of a policy purchased at retirement age."

If you currently have a term policy, you might be able to convert it to a permanent policy within a certain window. "That would allow you to keep your health rating from when the policy first started, which can help keep premiums low," Austin says. "Otherwise, be sure to apply before you turn 60, which is when the curve on pricing rises significantly."

"If you've ever witnessed a friend or loved one grapple with the decline of a parent or spouse, you know how big a toll it can take," Austin says. "But just a little bit of planning can help you stay ahead of the challenges of aging and take some of the burden off your family—and your finances."