It happens much faster than any of us expect. One minute you’re cradling this cute bundle of joy in your arms and the next thing you know your child is turning 18, graduating from high school, and planning to move out to college. Like many parents, I have no idea where the 18 years went, or how they went by so fast.
Much of the joy of becoming a legal adult can be overshadowed by the mad rush of college applications, senior year sports and other high school drama. As the dust is settling and my baby girl gets ready to pack up and leave the nest, I’ve realized that I’m looking forward to shifting my role from parent to being an advisor to a wonderful, amazing young adult.
As a parent, there are several things I used to be able to take care of that are now a lot more difficult to manage. At 18 years old, that’s not a child standing next to you anymore. Legally, your child is now an adult with individual rights and obligations.
Here are some financial considerations for children turning 18 to help make supporting your young adult a lot easier:
Durable power of attorney. Financial institutions (and college financial offices) will no longer share information with you, even though you’re the one paying the bills. A durable power of attorney document allows you to make financial decisions on behalf of your young adult, and do things like open and close bank accounts, set up IRAs, negotiate contracts, etc. You’ll need it to be effective immediately in order to help with day-to-day details like college finances.
Advanced health care directive. Again, you might be paying for health insurance, but when your child turns 18, the doctors are not allowed to give you any information about your child’s conditions or treatment without permission. If your child is unable to give that permission (e.g.: badly injured), the doctors can’t tell you anything unless you have a signed Advanced Directive and authorization to discuss your child’s healthcare.
New responsibilities. As a legal adult, your 18 year old will have additional civil responsibilities, such as voter registration, jury duty, and registering for the Selective Service. Along with that comes new opportunities to get into financial trouble. Young adults can legally sign contracts, and that includes taking on debt, although the Credit CARD Act of 2009 limits credit card issuers from issuing cards to adults under age 21 without a co-signer. Filing and paying taxes is another adult responsibility that can trip a young adult up. Most 18 year olds don’t earn enough to pay much in taxes, but work as an independent contractor, tip income from a food service job, or even work as a teacher’s assistant can bring them into the confusing realm of tax withholdings and tax filings. Income earned without sufficient tax withholding can lead to a surprise tax bill, or worse, a “Where’s our money” letter from the IRS. Make sure your young working adult understands their responsibilities for declaring income, withholding taxes, and filing tax returns.
Auto insurance. It’s a lot cheaper for parents to keep children on their home and auto insurance policies than it is for young adults to buy insurance directly. However, be aware that teens are far more likely to be involved in an accident. Keeping your teen on your policy risks raising your rates and being included in any claims that arise from an accident. If you own the car, you should also own the insurance policy. In this case, keep your teen on your policy and make sure your liability coverage is sufficient to protect your assets and your income. If your teen owns the car, then they should be the owner of the insurance policy too.
At Blankinship & Foster, we help you make smart decisions throughout all life transitions. By integrating financial planning, investment management and judgment born of experience, you’ll feel confident you are moving towards your goals and are financially prepared for what lies ahead. More importantly, you’ll have a sounding board to help prepare and guide you as each new challenge presents itself.
Give us a call to find out what makes us unique, and to experience the clarity and confidence of working with an advisor who places your interests first.