Estate planning is something we discuss regularly with our clients. We are all aware that we need to build a plan to protect our assets and to define how we want our family’s legacy to be passed on to the next generation. While we tend to start this process later in life, we are increasingly becoming bigger proponents of starting our initial estate and legal planning conversations much earlier.
When a child turns 18, many things happen. They will likely venture off to continue their education elsewhere or even get an early start to their careers. Some depending on when their birthday is might still be in high school, seemingly still a child, but legally they are considered an adult. So, it might seem peculiar to start an estate planning conversation now, but it could be less strange than it seems.
Health Care Directives
Upon reaching age 18, HIPAA Privacy Rules kick in. Essentially what this means is that medical records are required to be confidential despite whose insurance your child is on or who is ultimately paying those medical bills.
At this age – likely up until they are married or have someone else in their lives they trust – it is important that we teach our kids to indicate their willingness to share medical information with their parents, but what happens if they are incapacitated and can’t sign those forms?
Medical powers of attorney, or advance directives, allow adults to appoint someone to make healthcare decisions on their behalf if they are unable to do so. We always recommend married couples to do this with their spouses, but it is also important for us to do that for our children.
Most of us in our late teens and twenties didn’t have much in terms of savings or real financial assets when we were young adults, but that doesn’t mean we don’t need to protect ourselves or our families in case of an unexpected need. Besides liquid assets, young adults have cars, real estate, jewelry, and other real assets that are important to consider. Understanding what you have and what you want to do with them is a good exercise to undertake now so you are more prepared when your assets get bigger and entire families are involved.
Another important consideration when it comes to financial estate planning is keeping track of all the usernames and passwords we have for our various investment accounts. It’s easy to leave those in a digital password vault, but someone needs to know how to access that in case they need to distribute your assets upon your death. Living loved ones will also most likely have to prepare a final individual tax return. An income tax return of a decedent is prepared and filed in the same manner as when they were alive. All income up to the date of death must be reported and all credits and deductions to which the deceased is entitled may be claimed. You may also have to file individual income tax returns for years preceding the year of death if they weren’t previously filed and should have been. Having access to important documents and accounts will be crucial to submitting final paperwork.
Lastly, let’s talk about student loan debt. Federal loans are forgiven upon the death of the borrower, but not all private loans function that way. It’s important to understand the types of loans you have and put a plan in place to cover them in case of an emergency. Life insurance is the easiest way to protect our families from this debt – and it is often the cheapest and easiest to get at this point in our lives.
It may be easy to dismiss the need for an estate plan as a young adult. However, putting even a simple plan in place can help minimize potential issues down the road. Always consult with an experienced financial advisor and estate planner to make sure your intentions are correctly captured.