For many parents, this summer has been one of joy, remembrance – and anxious change. Many have seen their child turn eighteen, wrap up high school, and plan on moving out all in a single year.
The summer has been full of graduation parties, but now, you’re starting to think about college readiness and making sure your son or daughter is prepared for dorm life, from buying those extra-long twin sheets to the bathroom caddy to a new laptop.
A basic estate plan for your soon-to-be college student is probably not on that checklist, but it should be. This week’s MoneyDo is establish a basic estate plan for your college-age child.
When children turn 18, there are all sorts of things that they can do because they’re now legally an adult: vote, own property and assets, enter into legally binding contracts, open a credit card, and even execute an estate plan.
You might be wondering why an eighteen-year-old would need an estate plan. Eighteen-year-olds typically don’t have any assets. Estate planning isn’t just about asset transfers when we die. We also need to plan and name people to make decisions on our behalf if we can’t.
While your child may still be on your health insurance plan, you’re not automatically entitled to have access to medical records or to make medical decisions for them should the need arise. As an adult, your child can now legally decide who has access to that information and who can make a medical decision if they are unable to do so.
There are defaults under law about who can make medical decisions – which are often parents – but it can get complicated quickly if parents are divorced or disagree on a decision. The best course of action is to have a health care power of attorney executed that specifies who the decision maker is and who can access medical records.
It’s also important to think about how your college kid’s financial situation changes when they turn 18. You may no longer have access to their bank accounts. If you’ve helped them budget and balance in the past, or occasionally deposit money into their account online, they may have to legally grant you access to do so.
You may be able to get account access with various bank specific forms, but your child may also have a simple brokerage account, own a car, or have any number of unique accounts or ownerships. A better option is to have them execute a financial power of attorney in which they authorize someone to be able to access and manage their accounts and assets.
A simple Last Will & Testament is also part of a basic estate plan, as they can then decide who receives their assets, should the unthinkable happen. While they may not have much today, hard work may result in a nice internship, or summer job that pays them enough to start saving, so there could be an ‘estate’ to distribute. Or, they also might be a beneficiary of a trust established by someone else, in which they have a power of appointment to decide who receives their share if they die. Again, there are default rules established under state law, but the defaults aren’t always ideal or the best option.