Blog: When Your Child Becomes An Adult
Those of us that are parents can attest: your children become adults in the blink of an eye. And, despite our desire to still see them as children, once they turn 18 they are legally considered adults - with some serious financial issues that require consideration.
This isn’t a happy subject to discuss, but my feeling about it is that it’s better to address these things rather than avoid them.
The following are some of the items of high importance that you should consider for your adult child.
One of the biggest issues parents struggle with is whether to have their child on their car insurance policy or have the child get their own policy. There are strong considerations for both.
If your adult child owns their own vehicle, it is usually advisable for them to have their own car insurance policy. When they have their own car, they are considered the primary driver and therefore responsible for any accidents or damages that may occur while operating the vehicle. Add to that the possibility, if they’re on your policy, that your personal assets could be at risk should they have an accident and a lawsuit arises. Keep in mind that your child having their own policy is probably a more expensive option, but it might be worth the extra cost.
If your child is still living at home and driving a vehicle that is registered in your name, it may be possible for them to be listed as an additional driver on your insurance policy. This is likely a less expensive option, but the liability issues mentioned above remain.
I recommend you work with an insurance agent who has extensive experience working with auto insurance to be sure your specific situation is addressed.
Will, Living Will, Durable Power of Attorney
As a parent, perhaps the most unfathomable thing to think about is the potential loss of a child. It’s so unthinkable that most people won’t even consider the financial ramifications surrounding it. Still, some financial planning needs to be done regardless.
First, your adult child should have a will. A will is a legal document that states how you want your assets to be distributed after your death. If you don't have a will, your assets will be distributed according to the laws of your state, which may not be what you want.
There are many reasons why your adult child should have a will. Here are a few:
- To ensure that their assets are distributed according to their wishes.
- To avoid probate/administration. Probate is the legal process of distributing assets after death. It can be a lengthy and expensive process in some states. Likewise, not having a will and having to go through an estate administration could be more complicated and expensive.
- To protect their assets from creditors.
- To provide for their loved ones in the event of their death.
If your adult child does not have a will, they should work with an estate planning attorney to create one. An estate planning attorney can help you and your child to create a will that meets their specific needs.
Next, your adult child should have a living will/health care power of attorney. A living will, also known as an advance directive, is a legal document that outlines a person's preferences for medical treatment in the event they are unable to communicate their wishes due to a serious illness or injury. The health care power of attorney (or health care proxy) names someone to make the medical decisions if the adult child is unable to do so.
Finally, your adult child should have a durable power of attorney. A durable power of attorney (DPOA) is a legal document that designates a trusted person to make certain financial and legal decisions on behalf of the person who creates the DPOA.
The DPOA is "durable" because it remains in effect even if the principal becomes incapacitated or unable to make decisions for themselves due to illness, injury, or other reasons. This means that the agent can continue to act on behalf of the principal for things like financial affairs, even if the principal is no longer able to provide guidance.
Does your adult child need life insurance? Probably not, if nobody is relying upon their income.
But there are some situations where life insurance is warranted. One situation that often gets overlooked is when parents co-sign student loans for their adult children. If something should happen to the child, the parents are still responsible for repayment of the loan. Since student loans can easily end up in six-figure amounts, insuring the student can be a prudent decision.
In this case, term insurance (temporary insurance that has a limited period of coverage) could be appropriate if it matches the term of the loan, and can be a very inexpensive way of managing that risk.
To leave this on a positive note, your adult child has a tremendous opportunity that we would all love to have: plenty of time ahead.
A while back, I wrote about The Generation Z Advantage and how young people can make time and investments work for them. It’s worth a re-read now with your adult children to put them on the path toward their goals and a long, happy life.
Please contact me with any questions.
No information in this article is intended to be legal advice.
Joseph A. Dispenza is not licensed for, and does not offer, property & casualty insurance. See a licensed property & casualty agent for specific advice.
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