Kids Becoming Adults? Here’s an Estate Planning Approach for You

Anyone who wants a lasting say in decisions about their health care, finances, children and legacy should have an estate plan. Here are some specific estate planning considerations for parents whose kids have come of age. 

When children reach the age of majority, usually between 18 and 21, it marks a significant milestone in their lives and the lives of their parents. This transition from childhood to adulthood brings new legal and financial responsibilities. Here are some essential estate planning issues to consider when children reach the age of majority.

Why does the age of majority matter for estate planning?

The age of majority refers to the legal age when children become recognized as adults and gain the ability to make independent decisions regarding their personal and financial matters. Before reaching the age of majority, parents or legal guardians have the authority to make decisions on behalf of their children. However, once children reach this milestone, they gain the legal capacity to manage their own finances, inherit assets and make important life choices.

The estate planning Implications

When children become adults, estate planning strategies need to be adjusted to reflect their new legal status and responsibilities. Consider the following implications:

1. Updating guardianship.

   Parents should review and revise their estate plans to remove provisions related to guardianship, as their children are now legal adults. However, if parents wish to continue providing guidance or support, alternative arrangements can be explored, such as setting up a trust or creating a power of attorney.

2. Health care directives.

   It is crucial for children to create their own health care directives, such as living wills and medical powers of attorney. These documents allow them to outline their health care preferences and appoint a trusted person to make medical decisions on their behalf.

3. Financial education.

   Parents should emphasize financial literacy and educate their children about managing money responsibly. This includes teaching them about budgeting, saving, investing and the importance of estate planning.

4. Custodial accounts.

   Control and ownership of assets held within UTMA or UGMA accounts for a minor will be transferred to the child. It is important for parents to discuss the responsibilities that come with these assets and the adult custodian’s wishes for these assets while understanding that the child now gets to make their own decisions.

Six estate planning strategies when children become adults 

To ensure a smooth transition into adulthood, parents and young adults can implement various estate planning strategies. Here are six to consider:

1. Establishing a trust.

   Parents can set up a trust to hold and manage assets on behalf of their children until they reach a specific age or milestone, such as completing higher education or starting a career. This allows parents to provide financial support while maintaining control over the assets until the children are ready to handle them responsibly.

2. Creating a power of attorney.

   A power of attorney document allows children to appoint a trusted individual to handle financial and legal matters on their behalf should they become incapacitated or unable to make decisions independently. This can help ensure that their affairs are properly managed and that someone they trust is authorized to act on their behalf.

3. Updating beneficiary designations.

   It is essential for children to review and update beneficiary designations on various accounts, such as life insurance policies, retirement plans and investment accounts. By ensuring that the beneficiary designations align with their wishes, they can hopefully prevent unintended consequences and have their assets distributed as desired.

4. Continuity planning for a family business.

   If the family owns a business, it is smart to plan for its continuity as children reach adulthood. This may mean including them in decision-making processes, gradually transitioning key roles or establishing a succession plan to ensure a smooth transfer of ownership.

5. Creating a financial plan.

   Young adults should develop a comprehensive financial plan that includes setting goals, budgeting, saving, investing and managing risks. Seeking professional advice from a financial planner can help them make informed decisions.

6. Discussing estate planning goals.

   Open and honest communication between parents and children is vital in estate planning. Discussing estate planning goals, intentions and expectations can help ensure that everyone’s desires are understood and accounted for, minimizing potential conflicts or misunderstandings in the future.

As children become adults, estate planning strategies must adapt to their new legal status and responsibilities. We believe that it is wise to work with a professional wealth advisor and estate planning attorney to create your plan, better protect your assets, ensure that your wishes are honored and establish a solid foundation for future generations.

Other topics in this series:

• Single? Here’s an Estate Planning Approach for You
  
• Newlywed? Here’s an Estate Planning Approach for You
  
• New Parent? Here’s an Estate Planning Approach for You
  
• Kids Becoming Adults? Here’s an Estate Planning Approach for You
  
• Child Getting Married? Here’s an Estate Planning Approach for You
  
• Have Grandkids? Here’s an Estate Planning Approach for You
  
• Blended Family? Here’s an Estate Planning Approach for You
  
• Retiring and Moving? Here’s an Estate Planning Approach for You

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