Estate Planning Concerns for Young Adults and New Parents
Estate Planning for Young Adults
When most people think of estate planning, they commonly think of older people with high value assets generated through decades in the workforce. Estate planning is not typically on the minds of younger adults; however, there are issues that should be on the radar of parents when their children turn 18 and, legally, become adults.
On a child’s 18th birthday, parents suddenly lose a variety of parental rights. Overnight, their ability to act on their child’s behalf comes to an end. Parents and children are often not aware of this fact, nor is estate planning for a young adult often considered. Nevertheless, it is something that, at a minimum, parents should be aware of, informed about and prepared for.
There are easy fixes to these concerns, but affirmative steps are required. For instance, if something happens to their young adult child, having a healthcare and financial power of attorney in place would be helpful. Once the child turns 18 and becomes an adult, parents lose their default right to make medical and financial decisions on the behalf of the adult child. Also, parents lose access to financial information. Both a financial and healthcare power of attorney, presumably naming the parent or parents as agent, would solve the parents’ sudden inability to step in and care for their young adult child. With these documents in place, a young adult can affirmatively give their parents authority to make medical and financial decisions on their behalf if the adult child becomes sick and/or incapacitated.
While a young adult typically does not have many assets, a financial power of attorney giving a parent the authority to make legal and financial decisions can still be helpful for tasks such as signing and depositing payroll checks, paying bills, paying tuition, applying for student loans, buying and selling assets, etc. For example, when a child is in college out of state or living overseas, a financial power of attorney giving a parent the ability to act on behalf of the child (as the parents did for the first 18 years of the child’s life) can be beneficial when their signature is needed. A young adult being able to rely on their parents, especially when in school or living out of town, is extremely convenient and important. It is critical to remember that after turning 18 years old, the adult child must affirmatively give these rights to the parents.
Another helpful document for a young adult’s estate plan is a HIPAA authorization. Sadly, parents all too often discover they lost certain rights after their child turned 18 when that young adult child is hospitalized. After all, no one receives notice upon their child’s 18th birthday that these rights have been lost. An executed HIPAA authorization is essentially a medical privacy release for information. When a child is a minor, medical decisions are made by the parents and parents have access to all medical records. As previously stated, when the child turns 18, he or she has a right to privacy and medical privacy laws block a parent’s access to medical information. Following the child’s 18th birthday, the child must affirmatively waive his or her right to privacy and give medical providers permission to speak to a third party – i.e., a parent – to keep them informed. The steps listed above will empower parents to continue to make decisions on behalf of their young adult child as they did before the child’s 18th birthday.
Estate Planning for New Parents
As any parent knows, new parents are often overwhelmed and consumed with more obvious and pressing needs than estate planning. However, it is vital for all new parents to have their estate plans reviewed or, more crucially, established if they do not have an estate plan. It is all too easy to procrastinate this important task when you are young, assuming these documents will not be needed for many decades.
When your family changes – by addition or subtraction of a family member – your estate planning needs also likely change. Any major life event is an excellent time to review your current plan. Often, a prior estate plan no longer matches your newfound need to ensure your child is cared for. Basically, you must verify that the plan you previously put in place (if any) still does what you want it to do considering your changed circumstances.
There are specific issues that young families must be aware of. With the addition of a new child, it is essential that parents define their wishes if something were to happen to one or both parents. New parents need a contingency in place if circumstances change. You need to ensure your “backups” are in place by deciding on fiduciaries.
The most important and hardest decision, of course, is deciding on the guardians for the minor child, i.e., who raises the child if something happens to both parents. Additionally, the birth of a child is likely to require updates to your Last Will and Testament and/or Revocable Trust. These documents are how you pass on inheritance. If a child is to inherit through a Will or Trust, you must decide how the minor’s inheritance is administered and the age in which that inheritance will be received. Additional decisions include choosing a fiduciary to manage those assets until the minor inherits and determining what the funds can and cannot be used for.
Other important decisions new parents need to, at a minimum, be aware of include health insurance for the child, whether additional life insurance is needed, whether to start a college savings account and whether beneficiary designations are updated. In addition to reviewing or establishing an estate plan, it is also a good idea for new parents to contact a financial advisor to review these matters.
These decisions, of course, can be made prior to the birth of the child. Perhaps, it is best to make these decisions before the child is born, when the parents are not yet sleep deprived. However, if you are already a parent without a plan in place, it is better late than never to ensure your child will be taken care of if something were to happen to you.
Zachary W. Worshtil is a Partner at the Law Office of Ralph W. Powers, Jr., P.C. He is also a member of the PGCBA Board of Directors and co-chair of the Probate, Estates, Trusts & Elder Law Section. He concentrates his practice primarily in estate administration and probate litigation.