By: Kati Krause
Preparation for the future has defined the last year for you and your high school senior. But is there still something crucial missing from your to-do list?
College applications, campus visits, graduation, dorm room décor…it can be a bitter-sweet blur for both student and parent. With all the rites of passage that come at this time of life, there is one that often gets overlooked—your son or daughter will change status from minor child to legal adult.
When a person turns 18, the power to call the shots in a variety of grownup situations—from healthcare to dispersing assets—is no longer automatically in parents’ hands. Along with your other sage advice for navigating adult life, a discussion about estate planning is an opportunity to counsel your child on the importance of tackling major decisions before urgent circumstances arise.
Estate planning is generally uncomplicated for an 18-year-old, as most young adults have not accumulated significant assets and need not worry about estate tax. Here are the four documents we recommend that every 18-year-old have in order, along with the basics to start the talk with your daughter or son:
Durable Healthcare Power of Attorney
This document lets you appoint an agent to make decisions about your healthcare if you are physically or mentally unable to communicate your wishes. These wishes must be in writing, and your agent is bound to follow them. They might include:
- The circumstances under which you want doctors to use machines to keep you alive.
- The circumstances under which you want to be hooked up to feeding tubes that provide food and water.
- The people who can access to your medical records.
Sometimes called a “medical directive,” a living will serves as written documentation of the procedures or medications you do and do not want to prolong your life if you cannot communicate with medical providers yourself. Unlike a durable healthcare POA, a living will does not name the person who can make medical decisions on your behalf. Having both documents in place helps ease the way for loved ones to carry out your wishes.
Health Insurance Portability and Accountability Act (HIPPA) Privacy Waiver
Healthcare providers and facilities require this waiver before your agent can access your medical records.
Why They Matter: This real-life example illustrates the importance of these medical documents. The parents of a college student got a call informing them that their child was in the hospital. Due to HIPPA privacy requirements and lack of any documents granting them legal power, the parents had no choice but to make a harrowing five-hour drive. They arrived at the hospital to find that the emergency was nothing more than a broken ankle.
Durable Financial Power of Attorney
This document identifies who you choose as your “agent” or “attorney-in-fact” to manage your assets and make financial decisions if you become incapacitated. Agent duties include paying everyday expenses, handling transactions with banks and other financial institutions, and filing and paying taxes.
Here are some points to consider:
- Without a financial power of attorney (POA), a parent or guardian would have to go through a court procedure to gain guardianship over your finances. This process can be time-consuming and costly, depending on your state.
- A POA—for finances or healthcare—can be classified as “springing” or non-springing. A durable, non-springing document becomes active as soon as you sign it. A springing document requires legal proof that you are incapacitated, creating a roadblock during an already difficult time.
- Any POA can be worded broadly to encompass a variety of situations or narrowly to cover only specific circumstances.
- Some financial institutions have their own formats for POA. You will ease the burden on surviving family members if you complete those forms as well as your own POA.
Why It Matters: A financial POA could have eased the situation for clients whose child was severely injured in a car accident. While he was in a medically induced coma, the parents had the added stress of figuring out how to pay his bills and file his tax return.
Last Will and Testament
Your last will and testament should specify how you want your assets distributed when you pass away. The document names the executor, or personal representative, who will oversee this distribution. If you pass without a will, the state you resided in will distribute your assets according to state law—a process that may not be consistent with your wishes.
The four most important clauses to include in your will are:
- Specifically, label the document as your “last will and testament.”
- Appoint an executor whom you trust.
- Specify bequests. That can range from cash, jewelry, and vehicles to pets, special family photos, and other meaningful mementos.
- A residuary clause that disposes of any parts of your estate not explicitly named in the rest of your will.
Why It Matters: State law, which often awards assets based on kinship—will probably not prioritize your child’s passionate social causes or fond remembrances that she wants to include as part of her legacy, nor will it consider the family’s existing financial situation when directing assets to survivors. A will can also make your child’s burial and memorial service wishes known and ease conflict in states that award divorced parents’ equal control over the estate in the absence of a will.
After the Talk
When you present estate planning as an important financial milestone, you instill a healthy attitude that will serve your adult child well throughout life. Once you have discussed putting important documents in place, here are a few key steps moving forward:
- Review your estate plan every three to five years or as you move through life stages, such as a new job, a new house, starting a family, etc.
- Store important documents in a fire-proof safe or safe deposit box.
- Name beneficiaries on all life insurance, investment, and retirement accounts. Proceeds will pass directly to these beneficiaries without a will or court action.
Parents who need help preparing for the estate planning discussion or need a reference for an attorney can reach out to the experts at FJY Financial. We’ll steer you in the right direction.