ESTATE PLANNING FOR PERSONS OVER 18 YEARS OF AGE
When we think of estate planning, we generally think of what happens when someone dies, i.e., who will raise the children who are minors, who will take care of the money for them, etc.
Estate planning does not, however, deal only with what happens at death. It also deals with protecting yourself while you are alive. Such matters include, among others, having valid powers of attorney for health care and asset management, retirement planning, having adequate insurance coverage, and getting the best available financial advice.
While we typically think of estate planning for ourselves, one group of persons who seem to be left out of the estate planning process are those persons who are 18 years of age, but who do not yet have children. We will call these persons “Young Adults”.
Generally, people start thinking about estate planning when they have children. Until that blessed event occurs, not much time it spent on estate planning. But it is wrong not to think about estate planning as soon as a person becomes a Young Adult.
A Young Adult is, by definition, no longer a minor and has full control over his or her financial life. Prior to becoming a Young Adult, his or her parent had full control over his or her finances and medical decisions.
It is extremely important to understand that once someone becomes a Young Adult, the parents have few legal rights over their child. That child is an adult and it does not matter whether the child is 18 years or 45 years; the parents’ rights are restricted.
Below are some of the things that all Young Adults must consider doing to protect themselves.
Power of Attorney for Health Care
As soon as a person is 18 years of age, he or she should sign a Durable Power of Attorney for Health Care giving someone the right to make medical decisions for him or her if he or she cannot do it for themselves.
This is especially important if the Young Adult is away at college.
Without such an executed document, it is possible that the parents may not be able to make a medical decision for their child if he or she is unable to do so.
Without this power of attorney, it may be necessary to go to court and have a conservator appointed for the Young Adult, which is time-consuming, expensive and public.
Power of Attorney for Asset Management
If a Young Adult has a bank account and a parent is not a signer on the account, the parent will not be able to access the account if the Young Adult needs the parents’ assistance.
While the best thing to do is add the parent as a signer on the account, the next best thing is have an executed Power of Attorney for Asset Management which gives the parents the right to take care of financial matters for the Young Adult.
This power of attorney is not limited to bank accounts. It can apply to any financial matters, including dealing with real estate, signing tax returns and dealing with contracts and agreements on behalf of the Young Adult.
As with the failure to have a health care power of attorney, failure to have an asset management power of attorney can result in the necessity of having a conservator appointed.
Will or Family Trust
If the Young Adult has bank accounts or brokerage accounts (other than retirement accounts) worth over $150,000 and the Young Adult dies, there will be a probate for the assets.
A probate could be avoided if the Young Adult has a family trust.
One does not think of using a family trust for a Young Adult, but the rules for probate and related matters apply the same to a person who is 18 years as they to do someone who is 55 years.
In addition to a probate, failure to have a Will or a Trust can result in the asset being distributed to family members that the Young Adult would not have wanted to receive the assets. Control of assets at one’s death is as important at age 18 as it is at older ages.
If the Young Adult owns real estate, they need to consider having a family trust to avoid probate. Incidentally, the family trust for someone 18 years of age may be the same type of family trust
as someone who is 50 years of age.
It is vitally important to start retirement planning at as early an age as possible. The earlier the age, the more time the money has to compound and grow before retirement. Just putting $2,000 per year in an IRA starting at age 14 and continuing to do every year will result in an incredible amount of retirement funds.
If the child or Young Adult cannot afford to put money into an IRA, the parents should consider putting money into an IRA for him or her.
If the Young Adult is working, it is important for that person to start putting some money in retirement accounts right away so it becomes a habit, and trying to increase that amount each year.
If the Young Adult works for a company that will match contributions to retirement accounts, the Young Adult should definitely contribute to that account, since the employer’s matching funds are free retirement dollars to the Young Adult.
Liability Insurance. The Young Adult should have adequate liability insurance for his or her car as well as for where he or she lives.
Many people believe that if they get sued and they do not have assets, they have nothing to lose, so they do not get much insurance coverage. This could not be farther from the truth.
In reality, if a person is sued and loses, the plaintiff receives a judgment which allows them to collect for 10 years. So if the Young Adult starts making a lot of money or acquires assets over the next 10 years, they might lose it under the judgment.
Even if 10 years go by and the judgment is not enforced, it can be renewed for another 10 years, thus making the Young Adult potentially at risk to lose any assets they acquire over that time period.
The best solution is to have excellent liability insurance coverage.
Umbrella Insurance. In addition to having liability insurance, the Young Adult should consider obtaining an umbrella insurance policy to cover the value of the assets the Young Adult expects to accumulate over the years.
Disability Insurance. The Young Adult should consider disability insurance in the event he or she is disabled and cannot work.
Life Insurance. Once a Young Adult gets married, they should consider buying life insurance to protect the family, i.e., the spouse and future children.
The ability to get life insurance, as well as the cost of life insurance, is based on two factors, age and health.
Unfortunately, so many people are getting diagnosed with illnesses at younger ages today. If a Young Adult waits until too long to get life insurance and has a medical issue, it may be too expensive to get the life insurance, or the Young Adult may be uninsurable.
The Young Adult should consider looking at life insurance at as early an age as possible.
As soon as the Young Adult starts putting money away into savings or into a retirement account, he or she should start working with an excellent financial advisor to understand how saving and investing works.
Many people save money, but do not invest it properly and the money does not grow.
It is important for the Young Adult to understand the relationship between saving money and making it grow. Oftentimes, it is the growth in the savings that allows a person to have the money to use as a down payment for a house or for some other purpose.
Many adults do not take the time to properly plan their estates, either for lifetime protection or for death purposes.
The sooner a Young Adult starts planning for his or her future by looking at the issues discussed above, the safer that future will be.