Estate Planning for Children Not Yet Launched: A Parent’s Guide
As parents, we cherish our children’s milestones, from their first steps to the moment they’re ready to step out into the world on their own. However, for some of us, this journey takes a different path.
I can relate to this personally, as my 11-year-old son, who has high-functioning autism, is deeply attached to our family. Based on his needs and development, I anticipate he might not leave home until his mid-twenties.
This situation isn’t unique to me. Perhaps you’re a parent of an 18, 24, or even a 30-year-old who is still living at home. They might be grappling with mental health challenges, some possibly undiagnosed, and for many families, the pandemic has intensified these challenges. The once borderline social child may now be entirely withdrawn, a shift that COVID-19 has sadly brought into many lives.
In such scenarios, a crucial question arises: what type of estate planning is appropriate when your child, whether due to developmental disabilities, mental health issues, the aftermath of a pandemic, or some other reason, hasn’t been able to launch independently?
In this post, we’ll dive into this topic, addressing the unique estate planning needs of children who are still finding their footing in the world.
The Critical First Step in Estate Planning for Young Adults
As we get into the specifics of estate planning for children not yet launched, it’s important to understand the foundational steps that apply to all young adults. This is especially crucial when your child turns 18, marking their legal transition into adulthood.
No matter the circumstances of your child – whether they have developmental disabilities, are preparing for college, or anywhere in between – if your child has capacity, two key documents are essential: a durable power of attorney and an advanced healthcare directive.
Durable Power of Attorney
This document is essential in avoiding the need for conservatorship. It allows your child to designate someone, typically the parents, to manage financial matters on their behalf.
This could include simple tasks like accessing a small bank account or more significant decisions, such as arranging housing. It’s a precautionary measure, ensuring that parents can legally assist in financial matters when the child is an adult.
Navigating Healthcare Decisions for Adult Children
Just as crucial is the advance healthcare directive. This allows parents to discuss medical concerns with doctors and access their child’s medical records.
Many parents assume that their role grants them automatic access to these records, but this isn’t the case. Once a child turns 18, they are legally considered an adult, and the presumption of parental access to medical information doesn’t exist.
Setting up an advance healthcare directive eliminates this barrier, ensuring parents can make informed decisions about their child’s health care.
The Role of a Healthcare Directive
A healthcare directive is an important tool in estate planning for parents. By having your child name you as their agent in this document, you gain the ability to communicate with their healthcare providers and access their medical records.
This is where the notion of waiving HIPAA rights comes into play. The Health Insurance Portability and Accountability Act (HIPAA), which protects the privacy of an individual’s medical information, can be a barrier for parents seeking to be involved in their adult child’s healthcare.
By having your child waive these rights in favor of you, their parent, it ensures that you can access crucial health information when needed.
Encouraging Young Adults to Sign These Documents
It’s a common misconception that being a parent gives you indefinite rights to make decisions for your child. The reality is that upon turning 18, your child is legally an adult, and this changes the legal dynamics significantly.
In my experience with clients, I strongly recommend that they have their child, once they turn 18, sign both the durable power of attorney and the healthcare directive.
Most children, understanding the importance of these documents, are willing to do so. However, there are exceptions. Some children may be oppositional and refuse to sign these documents. In other cases, the child may not have the capacity to sign, which might necessitate exploring conservatorship.
The reality is, unforeseen circumstances like accidents or health emergencies can happen at any time. If your child is hiking and has a severe accident, for instance, having these documents in place allows you to step in promptly and manage their day-to-day affairs, both financial and medical.
This initial step forms the cornerstone of effective estate planning, especially for those children who may need additional support as they navigate their path to independence.
Supporting Decision-Making in Young Adults
As we continue to explore estate planning for children who have not yet launched, it’s important to consider how we can assist them in making wise decisions. This is especially relevant for young adults who are still under our care and may need extra assistance in this area.
The Concept of Supported Decision-Making
One approach that has gained traction, and which many find to be effective, is supported decision-making.
This concept involves creating a team of trusted individuals around your child to aid in decision-making. This team is not randomly chosen; it’s composed of adults your child trusts and feels comfortable with. These could be family members, psychologists, social workers, teachers, or even mentors.
The Role of the Team
Each member of this team plays a specific role in your child’s life, providing guidance on various aspects such as emotional well-being, financial management, or social interactions. For instance, they might assist your child in understanding the nuances of managing money or offer advice on personal relationships.
Formalizing Support Through Contracts
What sets supported decision-making apart is the formalization of these support roles through non-binding contracts. These contracts clarify the responsibilities of each team member, making them aware of their importance in your child’s life.
It also allows your child to have a say in who is part of their support system, giving them a sense of control and involvement in their decision-making process.
Building Towards Independence
This approach is about providing immediate support and equipping our children with the skills and confidence to make their own decisions. By having a structured support system, they can gradually enhance their independence skills. Our goal as parents is to see our children be as independent as possible, recognizing that independence may look different for each child.
Incorporating supported decision-making into estate planning for children can be a good step. It acknowledges that while our children may not be fully launched, they are on a path towards greater independence.
This method aligns with the core principles of any effective estate planning guide: preparing for the future while respecting and supporting the individual needs of our children.
Financial Independence Through Savings and ABLE Accounts
Turning our focus to financial independence and management, this is a key area where we, as parents, can play a significant role in guiding and supporting our children.
Introducing the Basics of Money Management
A basic step is to initiate your child into the world of financial management. This can start with something as simple as setting up a small savings account for them. Whether your child already has a grasp on financial basics or is just beginning, a savings account is an excellent tool for teaching money management skills.
ABLE Accounts for Children with Disabilities
For children with disabilities, an effective financial tool is the ABLE account. I’ve discussed ABLE accounts in detail in three of my videos:
But it’s worth emphasizing their importance here. An ABLE account is particularly useful as it allows individuals with disabilities to manage their finances independently.
Advantages of an ABLE Account
The most significant advantage of an ABLE account is its impact on public benefits. The funds in this account do not count towards the asset limits of public benefits like SSI.
Essentially, this money is ‘invisible’ from the perspective of benefit calculations. You can contribute up to $18,000 each year (as of 2024) into this account, providing a substantial sum for your child to manage.
Managing Spending Within Limits
This account can serve as a resource for your child’s personal spending, offering them a sense of autonomy and responsibility in managing their own money.
Importantly, for those receiving SSI, the ABLE account allows them to maintain their assets under the $2,000 limit, avoiding any negative impact on their benefits. Even if they spend this money freely, it won’t jeopardize their financial support systems.
Building Launching Skills Through Financial Empowerment
Setting up and managing an ABLE account is an essential step in building independence skills for your child. By empowering them to handle their own finances within a structured and secure framework, we’re aiding them in slowly but surely moving towards greater independence.
Through these steps – introducing basic money management, setting up savings accounts, and utilizing tools like ABLE accounts – we’re not only planning for our children’s financial future but also actively contributing to their journey towards independence.
This approach is integral to any comprehensive estate planning for children, particularly those who are on the cusp of adulthood yet still require our guidance and support.
Estate Planning for Parents
So, what about you? Let’s shift our focus to your estate planning, where an essential question arises: How will your child manage their inheritance? This question is particularly important if your child may not yet be fully capable of handling financial responsibilities independently.
Special Needs Trusts for Disabled Children
If your child has a diagnosed disability, setting up a special needs trust is often the recommended course of action. This type of trust ensures that your child’s inheritance is managed responsibly and used for their benefit, without jeopardizing their eligibility for public benefits. A special needs trust can provide for your child’s supplemental needs while preserving their access to essential government programs.
Dynasty Trusts for Children Without Diagnosed Disabilities
For children who may not have a diagnosed disability but still require financial guidance – perhaps due to money management challenges or undiagnosed mental health issues – a dynasty trust can be a suitable option. This kind of trust allows you to pass wealth across generations while providing a structured way for your child to receive and manage their inheritance.
Understanding Trust Options
I have created videos explaining both special needs trusts and dynasty trusts, which I recommend watching for a deeper understanding of each option and guidance on choosing the most appropriate one for your situation.
Trust Distribution and Management
In cases where your child is receiving public benefits, it’s crucial to structure the trust carefully. You don’t want direct cash distributions that might disqualify them from these benefits. However, the trust can be set up to offer some degree of financial autonomy, such as providing access to a Visa card for certain expenses.
Balancing Control and Independence
The key is to balance control and independence. While a successor trustee might manage the trust, your child can still have some flexibility and opportunity to grow in their financial independence and decision-making. This approach ensures that your child’s inheritance is both a source of support and a tool for learning and growth.
Selecting a Trustee for Managing Your Child’s Inheritance
So then, a critical question arises: Who will manage the trust, particularly if your child isn’t quite prepared for such a responsibility? This becomes especially important if your child is set to receive a substantial inheritance. The last thing any parent wants is for their child to misuse these funds or become vulnerable to financial exploitation.
Safeguarding the Inheritance from Mismanagement and Predators
The primary goal in selecting a trustee is to protect your child from potentially squandering their inheritance or falling prey to financial predators. It’s about ensuring that the wealth you leave behind serves its intended purpose of providing for your child’s needs throughout their lifetime.
Finding the Right Successor Trustee
Identifying a suitable successor trustee is a significant decision. This person or entity will have the responsibility of managing the trust’s assets, making decisions that align with the best interests of your child. It requires someone who is not only trustworthy but also has the financial acumen and understanding of your family’s unique situation.
Resources for Choosing a Trustee
To assist in this decision-making process, I’ve created a video detailing how to select a successor trustee, particularly for a special needs trust. The principles and advice outlined in this video are also applicable to selecting a trustee for a dynasty trust, providing valuable insights for making this crucial choice.
Estate Planning for Families with Multiple Children
Now, let’s address a common scenario: you have multiple children, and one has launched independently while another has not. Deciding how to allocate your estate between them upon your passing is a significant and often challenging decision.
Balancing Inheritance Between Launched and Unlaunched Children
The key here is to carefully consider the individual needs and circumstances of each child. For the child who hasn’t launched, particularly if they are unable to work and support themselves, a detailed financial plan is needed to determine their lifelong financial requirements.
Consulting with Financial Experts
In these situations, I recommend seeking the expertise of a financial planner or advisor. They can help project the future financial needs of your unlaunched child, ensuring that their portion of the inheritance is adequate to support them throughout their life.
Communicating with Launched Children
Meanwhile, the child who has launched and is capable of self-support may not require as much from the inheritance. It’s essential to have transparent conversations with this child about the estate planning process and your intentions.
Often, they may understand and even appreciate the rationale behind allocating more resources to their sibling, so that they don’t have the future financial responsibility over their unlaunched sibling.
The Importance of Family Conversations
Open family discussions are invaluable in these situations. They provide an opportunity to explain your decisions and explore options like appointing the launched child as a trust protector or other flexible arrangements. This openness ensures that everyone understands and is prepared for the future.
Regular Reviews and Adjustments
Finally, it’s crucial to review your estate plan regularly, ideally every three to five years. These check-ins allow you to assess changes in your children’s independence levels and make necessary adjustments to your plans. You might find that reallocating resources becomes appropriate as circumstances evolve.
Tailoring Your Trust for Your Children’s Best Future
Remember, your trust is a living document that can evolve with your family’s needs. As you navigate planning for children at different stages of adulthood, flexibility in your estate plan is key.
I invite you to watch my video on estate planning for children with special needs, where I discuss strategies for children who are at different stages of launching. It’s a resource that can offer you further insights into tailoring your plan effectively.
For more personalized guidance, consider connecting with us at Cookman Law. We’re here to help you craft an estate plan that best supports your children’s unique journeys.Visit Cookman Law for more information and expert advice.