CSG Law Alert: Estate Planning for Families with College Age Children and Young Adults

Once a child attains the age of 18, they are a legal adult, and their parents are no longer authorized by law to receive their child’s confidential health or financial information. Additionally, if the unthinkable happens and a child does not have a Last Will and Testament, state law, rather than the intention of the child, will control the disposition of their probate assets. Therefore, it is important for adult children to execute estate planning documents and to take steps to prepare for the unpredictable future.

Health Care Directive and HIPAA Releases

Also called a health care proxy, an advance directive for health care or a power of attorney for health care, a health care directive grants to another person the right to make medical decisions in the event an individual is unable to do so himself or herself, as well as the ability to access the individual’s health care records. If an adult child becomes incapacitated and does not have a health care directive, the child’s parents will need to file an application to be appointed as their child’s Court-appointed guardian. Further, state law dictates who may apply for guardianship and prioritizes which individuals are entitled to serve as guardian, which may contradict the child’s wishes.  Guardianship proceedings can be costly, emotional, and slow moving depending on the jurisdiction.

Once a child becomes a legal adult, the child’s parent has no legal right to the child’s health care records which are protected by the Health Insurance Portability and Accountability Act (HIPAA). Even if a child is insured under the parent’s health insurance plan, HIPAA will still apply. Therefore, it is important for an adult child to have a health care directive with a HIPAA release.

Power of Attorney

A power of attorney is used by an individual (the “principal”) to grant to a designated attorney-in-fact the right to act for the principal concerning financial and other matters. Executing a power of attorney does not limit the principal’s right to act for himself or herself now, and the power of attorney may be revoked by the principal at any time. If a child becomes incapacitated and does not have a power of attorney, the child’s parents will need to go to make an application for a Court-appointed guardian.  As discussed above, state law will dictate those individuals who may seek guardianship which may be contrary to the child’s wishes. Additionally, if a parent is going to be transferring money to a child or paying a child’s credit card bills on a regular basis, having a properly executed power of attorney will allow the parent to monitor the accounts and balances.

Last Will and Testament

If an adult child does not have a Last Will and Testament and the unthinkable happens, the child’s probate assets will pass pursuant to state intestacy statutes.  Probate assets generally include any asset owned in the child’s sold name without a joint owner or designated beneficiaries.  Typically, this means that the probate assets of an unmarried adult child who does not have children of his or her own will pass to the child’s parents, which may or may not be a child’s intent. Even if a child does not have significant assets, a simple Last Will and Testament is recommended.

529 Plans and UTMA/UGMA Accounts

It is important for the owners of college savings accounts created under Section 529 of the Internal Revenue Code to name a successor owner to ensure that account can be managed and distributed uninterrupted in the event the owner becomes incapacitated or dies before the child who is the beneficiary of the account completes his or her college education. If no successor owner is designated by the owner, state law or the policy of the institution which is the custodian of the account will dictate the successor owner.

Once a child attains the age of majority (18-21 years depending on the state), Uniform Transfers to Minors Act (UTMA) accounts and Uniform Gifts to Minors Act (UGMA) accounts become the property of the child and the donor will have no rights to access or manage the account and distributions. Depending on the value of the account, the donor may not want the child to have unfettered access to the funds. If this is a concern, a family can create a limited liability company (LLC) and as children attain the age of majority, each child can contribute the funds in his or her account to the LLC in return for a membership interest. The original donor or a successor can be named as the manager of the LLC and can control the investments and distributions.  Another option would be for the child to create a trust for his or her own benefit and contribute the funds formerly held in the UTMA or UGMA account to the trust.

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Trusts & Estates