Being an adult comes with a lot of responsibilities, one of which is making sure you have legal documents prepared in case of an emergency or if you become incapacitated. This will also ensure that your assets are managed carefully.
It can be tough for parents to get their adult children’s medical and financial history, even if they are still supporting them. Before, parents would have had automatic authority over these records and choices; however, once their child becomes a legal adult, that changes.
The recent legal changes give parents and their adult children the chance to plan together. Young adults should set up a health care proxy, durable power of attorney, and/or semi-revocable trust while they have this opportunity.
In this article, we’ll talk about all the parts of planning your adult children’s future, from health care to trusts and power of attorney.
If your adult child receives a large sum of money upon turning 18 or 21, you must consider how they will manage those assets. Few adults at that age have the capacity to do so responsibly. This situation often arises when custodial accounts are created earlier in a child’s life. They are easily created under the Uniform Transfers to Minors Act (UTMA) and can go from an initial funding amount that’s modest to a much more substantial sum by the time the account holder reaches adulthood.
Your child will be able to access the federal UTMA account funds when they turn 18 or 21, depending on which state they reside in. This money can go towards helping them pay for college tuition and other post-secondary education expenses.
The same goes for other types of irrevocable trusts known as 2503(c) trusts, or minor trusts. They receive gifts that qualify for the annual federal gift exclusion, but minors cannot withdraw any of the funds until they’re 21 years old. Once they reach that age, full access is granted to whatever amount has accumulated over time.
A semi-revocable trust is an agreement between parents and a child that permits the transfer of money or assets from one party to another. In this case, the child agrees to move funds from UTMA or 2503(c) into the parent’s account so they can act as trustees for the new establishment. It’s important that the parents manage these assets responsibly by making smart investments and only withdrawing what is necessary to cover expenses. Once the child reaches a particular age, they will regain complete control over the fund.
Willingness from the young adult is necessary to sign and name their parents as agents or trustees for all of these documents. This act may involve some discussions surrounding how best to manage assets, and altogether presents a great opportunity for young adults to learn about future planning.
Health Care Proxy
If a medical emergency arises, it is essential to have speedy access to a young adult child’s medical files as well as the authority to make decisions about their medical care.
A health care proxy created by the child and designating the parent as a health care agent will grant access to medical records and authorize urgent decision-making in case of incapacity. If the child is a college student that wants their parents to have access to the medical information, the student needs to fill out the required HIPAA authorization form provided by the college.
A Durable Power of Attorney
A durable power of attorney is a document that legally allows another person to make decisions in your stead. This can be used in case of an emergency where you’re unable to make decisions yourself.
If a child creates a durable power of attorney and designates their parents as agents, this will authorize the parents to access the child’s bank accounts and make financial decisions on their behalf. The term “durable” means that it is effective as soon as it’s signed and remains effective even if the child becomes incapacitated, granting the parents immediate authority.
If your child becomes incapacitated or disabled, having a durable power of attorney will save you time and money that would be otherwise required to gain legal authority to make financial decisions on their behalf and access their accounts. The durable power of attorney not only allows the agents (parents) to handle transactions for the child in more common situations such as signing leases, opening accounts, or investing, but also authorizes them.
Many young adults put off important planning because they think it is something that only affects older people. However, there are several reasons why young adults should consider estate planning, including protecting their assets and providing their families with authority in case of unplanned events.