Once your child turns 18, you no longer have the same parental authority in the eyes of the law. It’s important to make sure your adult child has the necessary legal and financial protections in place and is ready to make informed decisions about the future.
The following tips can help you ensure your child is prepared for adulthood.
Key Takeaways
- You may be surprised to learn that estate planning for young adults should begin as early as age 18.
- In addition to estate planning, your 18-year-old should take additional steps to prepare for life as an adult.
- Sharing your financial values along the way can help your child make smart financial decisions.
Prepare the Necessary Estate Planning Documents
You may be surprised to learn that even 18-year-olds need estate planning documents in place to protect their interests and prepare for the future. Estate planning for your young adult should include the following documents.
Financial power of attorney
A financial power of attorney allows your child to designate an individual to manage his or her financial affairs in the event of injury or incapacitation. Without this document in place, you may have trouble accessing your child’s accounts, paying bills and loans, etc.
Healthcare power of attorney
A healthcare power of attorney allows your child to designate a trusted individual to make medical decisions on his or her behalf. This is an important protection to have in place in case an accident or injury renders your child unable to communicate. Without a healthcare power of attorney, you may not be able to make medical decisions on behalf of your child.
HIPAA authorization
The Health Insurance Portability and Accountability Act (HIPAA) protects the privacy of patients by restricting the medical information healthcare providers are authorized to share with unauthorized persons. To grant permission for you to receive medical updates, your child will need to sign a HIPAA authorization designating you as an authorized individual.
Update Your Insurance
Consider how your child’s status as an adult may impact your risk exposure, and take steps to make sure you have the proper insurance in place.
Health insurance
Children can typically stay on their parents’ health insurance policy until they reach age 26. If you choose to continue covering your child under your current plan, it’s important to make sure your child has access to in-network coverage, especially if your child moves out of state for college or work. It may be more cost effective to explore other options, such as an employer-sponsored health insurance plan (if your child is employed), a student health plan (if your child is attending college) or an individual plan purchased on the health insurance marketplace.
Homeowners/renters insurance
If your child is living in a college dorm, you may need to reevaluate your homeowners insurance policy to make sure your child’s property remains covered. If your child resides in an apartment, he or she may need to purchase renters insurance.
Car insurance
Consider whether your current car insurance remains adequate to cover your adult child’s needs. In many cases, keeping an 18-year-old on the family’s auto insurance policy is more cost effective than purchasing an individual policy. If your child attends college and doesn’t bring a car, you may be eligible for a distant driver discount, which has the potential to significantly reduce your rates.
Help Your Child Register to Vote
In addition to achieving personal independence, turning 18 marks a milestone in your child’s civic development. Encourage your young adult to register to vote, and share your values regarding civic responsibility.
Have Your Child Authorize the Sharing of Academic Records
The Family Educational Rights and Privacy Act (FERPA) protects students’ educational records. Without express written permission, you won’t be able to access your adult child’s academic records — even if you’re cutting the tuition checks. Make sure your child signs a FERPA release to grant permission to you and/or another other trusted individual to access his or her academic records.
Discuss Your Child’s Financial Responsibilities
A child’s 18th birthday is a great time to discuss the financial responsibilities of adulthood. Make sure your child understands that the decisions he or she makes today can have far-reaching financial impacts. Teach your child the value of saving and investing for the future, and warn him/her about the dangers of debt accumulation. While you can expect your young adult to make some mistakes along the way, maintaining open lines of communication allows you to help your child navigate financial decisions and establish the foundation for a solid financial future.
It’s worth noting that when a minor reaches the age of majority, any custodial account they may have (such as an UGMA or UTMA) automatically transfers full control of the assets to the beneficiary. The age for this transfer, typically 18 or 21, is set by state law and can sometimes be extended up to age 25, depending on the state and the terms of the account. Once the account is transferred, the now-adult has unrestricted access to the funds and can use them for any purpose they choose. Please check with your state for the age of majority, then speak with your wealth manager for next steps.
