Estate Planning and More for College Bound Young Adults
August 3, 2022
This article was originally published in Bloomberg Tax and republished on August 3, 2022.
As a working mom of three emerging adults who has practiced estate planning law for 30 years, I appreciate more than most that no asset is more worthy of protection than the well-being of one’s children. And while the legal protections for minors (those under the age of 18) are fairly clear, there are several often-overlooked legal and practical issues to consider for college-aged children.
Parents who have a child leaving for or already in college usually have a lengthy to-do list. Having their child sign estate-planning documents before heading to campus, however, may be far more important than purchasing a laptop, deciding on dorm room de´cor, or teaching them to do laundry without turning their white t-shirts pink.
Once a child turns 18, the state considers them an adult for certain purposes. This is the case whether they are in high school, attending college, or working full time. It may surprise some parents that in this age of the Health Insurance Portability and Accountability Act (HIPAA) and other privacy laws, they do not automatically have the right to check grades, receive tuition bills, or obtain information regarding a child’s healthcare, regardless of whether they are paying all those hefty bills. Instead, a student must give explicit permission through a power of attorney or other school-generated form to ensure their parents have access to health, financial, and educational information.
Many universities will accept payment for tuition and other related expenses from a parent, but they will not directly send an invoice or provide account information to anyone other than the student. Similarly, if a parent, requests a copy of their child’s grades or health records, they may be out of luck. But we, as advisors can help our clients ensure they have the documents needed to allow access to their child’s academic files, medical records, and other protected information. We can also help our clients understand the importance of considering liability protection for college-bound students.
Durable Power of Attorney for Health Care and HIPAA Release
HIPAA restricts medical professionals from disclosing health care information due to privacy and confidentiality concerns. Without specific written authorization, medical providers are prohibited from sharing and discussing an adult child’s medical condition, diagnosis, and treatment. Most people understand that a Durable Power of Attorney for Health Care is important for elderly people, but this document is also imperative for young adults.
A Durable Power of Attorney for Health Care allows a child to designate an agent (usually a parent) to make important medical decisions when he or she is unable to do so. For a young adult, it is important to determine if a state’s Durable Power of Attorney for Health Care form includes HIPAA release language allowing the named agent access to medical records. If a state’s Power of Attorney form does not incorporate HIPAA language, a separate release form should be prepared. This is particularly important when a child is too busy with schoolwork to take care of follow-up health care items, such as transferring files or requesting copies of x-rays to hometown doctors. Unless a parent can produce documentation evidencing authorization, she will be unable to facilitate these types of requests.
Although not the primary focus of a student’s Power of Attorney of Health Care, the document also allows the expression of wishes relating to end-of-life decisions, including the withholding of life-sustaining medical treatment or the artificial administration of food and water. Finally, a Durable Power of Attorney for Health Care can include language relating to organ donation and burial or cremation instructions.
Durable Power of Attorney for Property
In addition to a Durable Power of Attorney for Health Care, an 18-year old child should execute a Durable Power of Attorney for Property. Without it, even though the parents may be a child’s sole source of support, they have no right to access a college aged child’s bank account. A Durable Power of Attorney for Property designates an agent (again, usually a parent) to make financial decisions for the principal (the child). While the child is at school, a parent may need to manage student loans, investment accounts, and other fiscal matters. For example, if a child decides to study abroad, the Durable Power of Attorney for Property would allow the agent to file the child’s tax return and write a check from the child’s checking account. The need for Durable Powers of Attorney and the identification of an appropriate agent and successor agent becomes even more pronounced in a separated or divorced household. Durable Powers of Attorney can also serve another very important purpose. If a child becomes incapacitated and did not execute a Durable Power of Attorney, the client might be required to initiate court proceedings in order to appoint a Guardian. A Guardian of the Person could be required to make decisions about a child’s physical well-being, while a Guardian of the Estate could be required to make decisions relating to the child’s finances. The legal process associated with a guardianship is often emotional, time-consuming, and expensive. It also allows information relating to private family matters to become part of the public record—an often-undesirable consequence.
Authorization to Receive Educational Information—FERPA Release
The Family Educational Rights and Privacy Act (FERPA) is a federal law that protects a student’s rights and restricts any other individual or entity, including parents, from having access to academic files. In response to FERPA, many schools developed their own forms relating to the release and waiver of their students’ records. A Durable Power of Attorney for Property and your child’s school form should be obtained and executed prior to the beginning of the first day of school in order to ensure that a parent’s access to educational records are not restricted by FERPA.
Will and/or Revocable Trust
College students who have assets in their own names should also consider signing a Will and possibly a revocable trust to avoid the imposition of intestacy laws. If a person dies without a Will, the laws of the state of residency will dictate the manner of distribution of assets. In the case of an unmarried young adult without children, the majority of intestacy laws provide for assets to be distributed to parents and siblings. In many cases, this may be an acceptable outcome. However, a student should consult with an estate planning attorney and consider whether these family members are appropriate beneficiaries. Many factors should be examined, including but not limited to, income and estate tax consequences. Further, without a Will, state laws dictate who is in charge of administering property. Any disagreements between individuals wanting to act in this capacity may take a significant amount of time and money to be adjudicated in probate court.
By establishing a Will, a young adult can direct the distribution of personal effects, including cars and jewelry, and other financial holdings such as checking, savings, and brokerage accounts, to desired beneficiaries. Further, by appointing a personal representative in a Will, the individuals or entities most capable of handling the responsibilities associated with administering an estate can be designated. Even without significant wealth, a young adult may feel that the default choices provided by state law will not accomplish his or her intent.
The estate planning process is a perfect opportunity to begin teaching a college-age child about family values from many different perspectives. It is likely that this will be the first time that the student will need to open a checking account, apply for a credit card and take responsibility for payment of tuition and housing bills. As part of the introduction to ‘‘real life,’’ it is an ideal time to discuss and ask a child to execute a Durable Power of Attorney for Health Care, Durable Power of Attorney for Property, waiver and release forms created by a school and a Will or other appropriate estate planning document.
Umbrella Insurance Coverage
Parents, with the help of a professional, should also consider issues that they have never thought about when their child moves out of the family home. For example, parents should review the coverage limits associated with their automobile and homeowner’s insurance policies and consider purchasing or increasing their ‘‘umbrella’’ or excess liability insurance. Umbrella policies protect assets when faced with a catastrophic liability claim. What if a child is accused of cyber bullying? Does a child have the family car? What if the family car is lent to a friend and that friend is in an accident? Did a child bring a pet to school? What if the pet bites a visitor? An umbrella policy is relatively inexpensive and could provide liability protection to parents in these types of situations.
While a student lives in a dorm or in campus owned housing, parents should confirm if personal property at school is covered by an existing homeowner’s insurance policy. When a child moves off campus, it is more likely that renter’s insurance will be required. If a student has valuable property at school, like jewelry, a bike, or a computer, renter’s insurance protects against theft. Also, renter’s insurance often covers the medical expenses of guests injured at the residence. Finally, renter’s insurance typically protects against fires caused by electrical issues or other unintentional causes.
What to Do Next?
Advisors should reach out to their clients and make sure that when a child turns 18, they have the appropriate documents in place. It is critical to discuss potential issues that can arise when a child is in a good physical and psychological place and not overwhelmed by schoolwork and the other social pressures that often accompany the start of college. Consider the story of a client whose 18-year old freshman became depressed while at school to the point of hospitalization. When the parents found out that their child was being treated (incidentally communicated by the roommate), they were unable to access any health records or make any provisions for care without their child’s consent.
Or consider the story of a client whose 19-year old son was attending a prestigious private university and paying his own tuition through a personal checking account that the parents funded on a monthly basis. The student was struggling academically, placed on academic probation, and ultimately failed out of school with no parental notification. A primary cause of the academic struggle was a substance abuse issue of which the parents also had no knowledge. All the while, the parents continued to fund their child’s bank account with money intended for tuition and other related expenses.
While it would be any parent’s nightmare to have either of these scenarios play out, the appropriate planning discussed in this article could have eased the stress of both situations. The time to act is before there is a problem and signing estate planning documents should be included as part of a standard family send-off-to-college-ritual.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners. Sheri E. Warsh is a partner at Levenfeld Pearlstein LLC in the Trusts and Estates Group. She can be reached for comments and questions at firstname.lastname@example.org or 312-476-7513.