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College and Estate Planning
College and estate planning intersect at several points that should be considered when planning for the future. When applications and essays are due, let’s talk about some consequences of the college transition to the family.
Planning for College Costs
Opening and funding a 529 College Savings Account to benefit a child or grandchild helps family members invest tax-free for educational expenses. Each state has its own plan. If you invest in
your own state’s plan, you may get a healthy deduction on state income taxes. In addition, funds in the account grow tax-free, and there are no taxes on capital gains. For grandparents, funding a 529 account is an excellent way to help pay qualified education costs, while reducing their taxable estate. However, there are limits to contributions, which vary from state to state.
Another means of funding a family member’s educational expenses while reducing the taxable estate is for grandparents to pay for tuition and other qualified expenses. These payments must be made directly to the educational institution to qualify for an exception to the annual gift exclusion limit of $17,000.
Estate Planning for Young Adults
Preparing young adults for the future includes planning for the unexpected. Once young adults become of legal age under state law, their parents lose legal authority to be involved in the children’s financial or legal matters. Parents do not automatically inherit a child’s estate, so those who have inherited family wealth or are entrepreneurially minded may have enough assets to warrant having a last will.
Once their children are legally adults, parents also lose legal authority to be involved in their children’s health care, even in an emergency. Parents may not speak with doctors of their children, access their medical or health insurance records, or make health care decisions if a young adult child is incapacitated. This may seem shocking, but it’s the law. Physicians and hospital systems today don’t have the flexibility to bend the rules as they may have done in the past.
Parents and their young adult children can prepare for worst-case scenarios with several estate planning documents: General Durable Power of Attorney, Healthcare Power of Attorney, Living
Will, and HIPAA form.
A General Durable Power of Attorney allows another person to manage finances. The Health Care Power of Attorney allows another person to discuss medical care and be involved in decision-making. HIPAA forms are needed to permit another person to access health care and insurance records.
An 18-year-old seems like the last person needing a Living Will. However, it is necessary. A Living Will is used to give directions about the kind of care they would want if they had a terminal illness or were critically injured in an accident and unable to convey end-of-life wishes. The Living Will should be specific, especially relating to CPR, resuscitation, the use of a ventilator, or the use of a feeding tube.
Most young adults aren’t thinking about final wishes or handing over the ability to manage their finances. However, these documents are still just as necessary for a newly minted-adult as for a senior. They provide peace of mind, make difficult situations more manageable, and are an emblem of maturity—planning for the future, whatever it may bring.
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