Estate Planning When a Child Turns 18: What You Need to Know

Turning eighteen is a major milestone for any child and their parents. Your child may be heading off to college, starting a job, or simply taking their first steps into adulthood. But turning eighteen also brings some important estate planning issues that families may not immediately think about.

In New Jersey, a child generally becomes a legal adult at age eighteen. That raises several questions for parents. Is your child ready to inherit money without any oversight? Are they mature enough to take on a role in your estate plan? And perhaps most importantly, if something happens to your child, can you still step in and help the way you could when they were a minor?

If your children are approaching adulthood, or recently reached it, this is a good time to take another look at your estate plan and some basic planning they may now need for themselves.

What Is Included in an Estate Plan?

Before looking at what changes when a child turns eighteen, it helps to understand the basic documents that make up an estate plan.

A typical will-based estate plan generally includes five core documents:

• Last Will and Testament

• Durable Financial Power of Attorney

• Healthcare Power of Attorney

• Living Will

• HIPAA Authorization

The will determines who receives assets passing through your estate after your death and names the person who will handle your estate. The other documents are primarily designed to help if you become unable to manage things for yourself during your lifetime. A Durable Financial Power of Attorney allows someone to handle financial and legal matters on your behalf, while your healthcare documents address medical decisions, end-of-life wishes, and access to private medical information.

Some families may instead benefit from a plan centered around a revocable living trust. A trust can provide more control over how assets are managed and eventually distributed, and can also help avoid probate when assets are properly coordinated with the trust.

As children become adults, some of the choices you made in these documents may deserve another look.

Is Your 18-Year-Old Ready to Inherit?

When children are young, most parents understand that they should not receive a substantial inheritance outright. An eight-year-old obviously is not equipped to manage hundreds of thousands of dollars.

The answer can feel less obvious once that child turns eighteen.

Legally, an 18-year-old is an adult in New Jersey. That does not necessarily mean every 18- or 19-year-old is prepared to responsibly manage a significant inheritance.

Consider a married couple with an 18-year-old son. If both parents unexpectedly pass away and their son is the beneficiary of a $500,000 life insurance policy payable directly to him, he may suddenly have complete control over half a million dollars. The same concern can arise with a bank account that names him as a payable-on-death beneficiary.

Would he know how to manage it? Maybe. But many parents would be uncomfortable putting that much money in the hands of someone who just graduated from high school.

This is why how an asset passes can be just as important as who receives it.

Assets with beneficiary or payable-on-death designations generally pass directly to the person named on the account, rather than under the will. Other assets may pass through the estate and be distributed under the will. Either way, if an adult child is set to receive the money outright, turning eighteen may mean they receive it with no continuing oversight.

Parents who are uncomfortable with that result have other options.

One possibility is to include a testamentary trust in your will for beneficiaries who are under a certain age when you pass away. Instead of receiving the entire inheritance outright, the child's share can remain in trust, with a trustee managing the money and making distributions based on the instructions you leave behind.

For example, the trust might allow money to be used for the child's education, healthcare, housing, and other needs while delaying full control of the remaining funds until the child is older. Depending on the family's goals, the child might receive control at a particular age or in stages over time.

A revocable living trust can accomplish similar goals and can provide more flexibility in deciding how an inheritance will be managed. Assets placed in or directed to the trust can continue to be managed under its terms after a parent's death, allowing the parent to decide how and when a child's inheritance should become available.

There is no single age that is right for every family. A responsible twenty-three-year-old with a career and good financial judgment may be perfectly capable of managing an inheritance. Another child at thirty may still benefit from some protection or oversight.

The important question is not simply whether your child is legally an adult. The better question is:

If something happened to me tomorrow, would I be comfortable with my child having complete control over this inheritance?

If the answer is no, your estate plan should account for that.

Should Your Adult Child Have a Role in Your Estate Plan?

Turning eighteen can also create new possibilities for who serves in your estate plan.

Parents with young children obviously cannot name those children to handle important roles. Instead, they often name siblings, parents, close friends, or other trusted adults to serve as executor, trustee, financial agent, or healthcare representative.

As children get older, that may change.

An adult child may eventually become the most natural person to serve in one or more of these roles. But simply turning eighteen does not automatically make them the right choice.

These jobs can come with a lot of responsibility. An executor may have to manage assets, work with attorneys and financial institutions, pay expenses and debts, and eventually distribute the estate. A trustee may be responsible for managing money for other beneficiaries for extended periods of time. Someone named under a Financial Power of Attorney may have broad authority over a parent's finances, while a healthcare representative may be asked to make very difficult medical decisions.

So parents should look beyond age.

Is your child responsible and organized? Can they handle money? Would they be able to make a difficult decision under pressure? If there are multiple children, would naming one create unnecessary conflict? And does the child actually want the responsibility?

For an eighteen- or nineteen-year-old who is away at college and has never managed much more than a checking account, an older relative or trusted friend may still make more sense. Five or ten years later, that same child may be the obvious choice.

This is one reason estate planning should not be viewed as something you complete once and put on a shelf forever. As your children grow up, the people best suited to carry out your plan may change too.

Your Child Is Now an Adult, But What Happens If They Need Your Help?

There is another side of turning eighteen that parents sometimes overlook.

For the first eighteen years of your child's life, you have generally been responsible for them. You schedule medical appointments, speak with doctors, help manage important financial matters, and make decisions on their behalf.

Then they become an adult.

Once your child reaches adulthood, being their parent does not necessarily give you the same ability to access medical information or make healthcare and financial decisions for them that you had while they were a minor.

This can become particularly important when a child leaves for college.

Imagine your eighteen-year-old daughter goes to school across the country. Late one night, you receive a call that she has been seriously injured in an accident and taken to a hospital. You immediately call wanting to know what happened, how she is doing, and what treatment she is receiving.

But your daughter is no longer a minor. Medical privacy rules now apply to her as an adult, and you may not have the same access to information that you would have had a year earlier simply because you are her parent.

The problem can become even more serious if she is temporarily unable to make her own healthcare decisions. A Healthcare Power of Attorney allows her to choose someone, often a parent, to make those decisions if she cannot make them herself. A HIPAA Authorization can also give the people she chooses access to otherwise private medical information.

Without those documents, parents may find themselves trying to help during an emergency without the authority or access to information they assumed they would have.

That is why turning eighteen is a good time for a young adult to consider some basic planning of their own.

At minimum, families may want to discuss a HIPAA Authorization and Healthcare Power of Attorney, particularly before a child leaves home for college. A Financial Power of Attorney may also make sense so that a parent or another trusted person can help with financial or legal matters if the need arises.

Hopefully, these documents will sit unused for many years. But if an emergency occurs hundreds or thousands of miles away, having them already in place can make a very difficult situation easier to manage.

Turning Eighteen Is a Good Time to Review the Family's Planning

A child's eighteenth birthday does not necessarily mean that the family's entire estate plan needs to be rewritten. But it is a useful checkpoint.

Parents should consider whether an adult child is ready to receive an inheritance outright, whether they are mature enough to take on important roles in the plan, and whether choices made when the child was much younger still make sense today.

At the same time, the new adult may need a few documents of their own.

Estate planning changes as families change. The plan that made perfect sense when your children were five and eight may not be the plan you want when they are eighteen and twenty-one.

If your children are approaching adulthood, or if they reached it several years ago and your estate plan has not been reviewed since, it may be worth taking another look at whether your documents still accomplish what you want them to.

If you would like to discuss your family's estate planning needs, schedule a consultation with SG Law. We can review your current plan and discuss what changes, if any, make sense for your family.

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