Estate Planning for a College Student or Young Adult
by ACTEC Fellows Jean Gordon Carter and Katherine E. Ramsey
Your child becomes a legal adult when they turn 18-years old. Understand what legal documents such as a Power of Attorney or health care proxy, you should have them sign before heading off to college and into the world. ACTEC Fellows Jean Gordon Carter and Katherine E. Ramsey discuss legal and financial information to help guide the way for your emerging adult.
And, I’m also an ACTEC Fellow from Richmond, VA.
Our topic for the next few minutes is estate planning for the college-bound 18-year-old. What do you tell them? What can you do? Katherine, I know you’ve been through it with your son, Matthew. What did you tell him? What happened?
As have you with William. One of the first problems I ran into as a parent with a college-bound student is realizing that as soon as they turn 18, as soon as they have their 18th birthday, all of a sudden, you, as a parent, have no rights.
And they’re happy, but when you need to go and get immunization records and health forms filled out by the doctor, the doctor is not going to talk to you. So, one of the first things you need to do as a parent is have your child sign a Power of Attorney (POA) and an Advanced Medical Directive (Health-Care Proxy) and that will give you the right to talk to the doctors, get their records, and should, heaven forbid, the child have an accident, you will be in a position to make those decisions without a whole lot of paperwork.
Just because I’m his mother, I have no right, once he’s 18?
Once he’s 18, he is an adult and you have no more right to make decisions for him as you would me or anyone else.
Does my 18-year-old need a Will?
Well, that depends. It’s a great question. The default rule in most states is that if the child has assets when they die, the assets would go to their parents by default. So, if you have a situation where that would be a desired outcome, you don’t necessarily need a Will, but having a Will is still not a bad idea because it makes it clear who’s going to make the decisions. Certainly, if there is a blended family where you have stepparents, maybe the child wants the assets to go to a stepparent or to siblings as opposed to the parents. They need a Will to do that as well.
What about items like an IRA account or another thing of that nature? My son had those.
Well, anything that they have in separate accounts, if you can make sure that the beneficiaries are updated so that it conforms with the Will. And another thing that a child may need to look at, speaking of beneficiaries, is if there is a trust in the family where the child is a beneficiary, it may be that the trust will say that if something happens to the child, those assets are going to go to siblings, for example. Well, the child may also have the power to change that, which you won’t know unless you review the document, but if they have that power, they can exercise that in a Will that maybe redirects how those assets are handled at the child’s death.
Makes sense. William also had a Uniform Transfers to Minors Account, and he had a nice 529 (Plan).
And, the 529, in particular, it’s important to make sure that that can continue uninterrupted. Usually, the 529s are controlled by the donor, the parent or the grandparent who set up the account; and should something happen to them, we want to be sure that those distributions can still be made so the child’s education is not interrupted. So, that would be something else on the checklist for the parent (or grandparent) to make sure that they have a successor lined up for that 529 Plan to make sure that’s uninterrupted. For the UTMA, the Uniform Transfers to Minors Act, the accounts that were created for the child when they were under 18, many times the financial people, the banks, so forth; they will know that the child is 18. They will not want to talk to you as the parent anymore. They say we’ve got to, by law, retitle this account in the name of the child. Now, as a parent you could look at that as, oh my gosh, I’m going to have to tell the child that they’re going to have this money and they’re going to take it and run off with it and buy a fancy car. Or, you can use it as a learning opportunity to sit down with the child, as we did with Matthew, and say, “Alright, you’re coming with me to the financial advisor. We’re going to sit down, look at this account; it’s going to be in your name but you need to know that it is not there for you to just spend on whatever you want. It is there for your college, it is there for a house, or whatever.” It is a good opportunity to begin that educating process.
So, Katherine, to summarize, once a child turns 18, mom has no rights anymore.
Absolutely none. We’ve done our job at that point, in many respects, and the law says it’s now time for the child to take it on their own.
Sounds fair. Katherine, thank you very much for helping us today.
You’re quite welcome.