High School Seniors Can Use a Starter Estate Plan
If you have a high school senior at home, childhood is soon coming to an end for them as they prepare to graduate, turn 18, and enter the “real world.”
You have done everything you can to prepare your child mentally, emotionally, and financially for what comes next. But are they—and you—legally prepared for their official start of adulthood?
Soon, your child will be able to vote, get married, and sign a mortgage. They will also be emancipated from your parental authority. This means that, without signed legal documents, you could find yourself helpless to intervene in an emergency or other situation where your adult child requires aid.
Adventures in Adulting
Parents never stop being parents. No matter how old our kids are, we feel compelled to nurture and protect them. However, our ability to do so is severely limited once our kids turn 18.
It is debatable whether an 18-year-old is truly an adult. Scientists who study the brain say the transition to adulthood is cognitively much more nuanced and, for some, brain development is not complete until people reach their late 20s or early 30s.
Brain research helps explain why many young people engage in risky behavior well beyond the time they reach the age of legal adulthood. The transition out of adolescence is fraught with potential health risks.
The point here is not to scare you but rather to prepare you and your soon-to-be adult child with the resources to meet unexpected possibilities head-on.
Although you may recognize the dangers that await your child in the adult world, you may be unaware that if something happens to them and they have not signed certain estate planning documents and cannot communicate their wishes, you will likely have to petition the court before you can obtain information about them and make decisions for them. And that takes time you might not have.
It does not have to be something bad, like an accident, that triggers the need for a trusted decision-maker. Maybe your child plans to enter the military, attend an out-of-state university, or travel abroad after they graduate. Whatever their plans are, they should have a basic estate plan when they turn 18.
The 18-Year-Old’s Estate Plan Starter Pack
While an 18-year-old may not need a full estate plan, they should at least prepare a few forms that address the new reality of their legal independence and the fact that a parent no longer has the right to manage their affairs.
Powers of Attorney
A power of attorney (POA) document authorizes someone else to act on your behalf concerning the circumstances laid out in that document. Depending on state law, POAs can take effect immediately, at a future date, or upon a specific condition being met (e.g., incapacity due to injury or illness). The latter is known as a springing power of attorney.
A POA can be broad in scope or limited only to those actions and types of decisions outlined in the document. Also, states have different rules governing POAs, and more than one form may be required if your child is changing their residence to a different state than you.
- A medical power of attorney allows an adult child to designate another person to make medical decisions for them. For example, it could allow you to step in and direct your child’s care in a medical emergency.
- A financial power of attorney grants a designated person the authority to conduct financial and legal matters, such as paying bills, filing taxes, and managing banking and investment accounts, on another’s behalf.
Advance Directive/Living Will
Young people tend to feel invincible. But contemplating mortality, and planning for it, is a part of growing up.
One way to plan for a health crisis is with an advance directive or living will, which is a set of instructions that a person uses to outline their healthcare wishes if they suffer a debilitating injury or illness and are unable to communicate. It will specify end-of-life medical treatment preferences such as whether they want a feeding tube, artificial hydration, or a breathing machine to keep them alive.
These tools are commonly confused with a DNR (do not resuscitate) order. DNR orders are not typically included within an estate plan but are instead executed within specific medical facilities like hospitals or assisted living facilities.
Advance directives are not legally recognized in all states, but where they are, they can provide helpful guidance to the person acting under a medical power of attorney.
Health Insurance Portability and Accountability Act Waiver
As either a separate document or included in a medical power of attorney, a Health Insurance Portability and Accountability Act (HIPAA) waiver grants named individuals access to the adult child’s protected health information. You will likely need a HIPAA waiver even if your child is still covered under your health insurance.
Talk to Your Teen about Estate Planning
At some point, a parent and teenager should sit down and talk about the legal rights and responsibilities of adulthood. Stress to your teen that, without documents like financial and medical powers of attorney, state law will choose a decision-maker for them, most likely a parent, in the event they are unable to manage their own affairs. If they want a different person making decisions for them, they must name them in legal documents. Also, let them know that preparing legal documents in advance will help them avoid the lengthy and public process of having someone appointed as their decision-maker.
Ready to talk to your teen about estate planning? We are happy to join the conversation and offer professional guidance.
Does a Young Adult Need a Will?
As our client—and as a parent—you know that having a comprehensive estate plan ensures that your children will be taken care of if something happens to you. But what if something happens to your child? Should they have a will, too? And if they do not, what happens then?
These are some of the questions a parent might ask themselves and their child when broaching the topic of estate planning. While it might not be the most comfortable conversation, getting your child to step out of their comfort zone and encouraging them to think about their legacy can help their transition to adulthood.
Motivations for a Young Person to Get a Will
When your child turns 18, they are legally an adult and can make a will. Although this is one of the less glamorous aspects of being an adult, it can foster a sense of independence and control over one’s actions and decisions.
The percentage of people who have an estate plan is low across all age groups. Oddly enough, however, the percentage of young adults with a will increased from 16 percent in 2020 to 24 percent in 2024, according to research from Caring.com.[1] Among the 18- to 34-year-old cohort, these were the top motivators for getting a will[2]:
- Media coverage (34 percent)
- Family expansion (34 percent)
- Home purchase (28 percent)
- Current events (26 percent)
- Upcoming travel (22 percent)
Most Young Adults Own Some Traditional and Digital Assets
It should be stressed that, even if your child does not own much, they still probably have things of value, such as a bank account, pet, vehicle, or personal possessions (collectibles, art, jewelry, heirlooms, or memorabilia). They could also have an inheritance they are already in possession of or that you are managing for them through a family trust.
While you probably have a good sense of the monetary and tangible accounts and property your children own, their online, digital assets may be less known to you but just as real to them as traditional assets—and in some cases, just as valuable. Digital assets are worth real-world money and include the following types of assets:
- Bitcoin and other cryptocurrencies
- Nonfungible tokens (NFTs)
- Funds in PayPal, Venmo, and other payment apps
- Money owed to them from selling products through an online store such as Amazon or Etsy
- Rewards program points
- Monetized content channels that produce ad revenue
- Website domain names
- Copyrighted digital works
- Online wagering and sports betting account funds
It is worth noting that a young adult may also have other digital assets that are valuable from a more sentimental perspective, like extensive photo or video libraries stored in a digital cloud.
Explain to your child where the estate in estate planning comes from. An estate consists of everything a person owns when they die. A young person may think they do not have enough money and property to warrant a will, but in terms of the law, a person can have an estate even if they die with $1 to their name.
And if your young adult child owns anything of any value—even if it is just sentimental value—and cares about what happens to it, they should think about creating a will.
Why Everyone Needs a Will
Parents who want to encourage their child to create a will can start by talking to them about the first step—taking inventory and making a list of all of their items and accounts. Next, you can raise the question of what would happen to these things if they were to pass away.
When discussing the importance of a will, you should stress what occurs when somebody dies without a will:
- Without a will, everything a young adult owns will likely have to go through probate court and eventually pass to their parents according to state statute. Some children may be fine with this, but others may prefer that a sibling, stepparent, stepsibling, significant other, friend, or somebody else receives their belongings.
- A charitably minded young person might also be interested in making a gift to a cause they are passionate about.
- Even if a child has only one specific item they want to leave to someone at their passing or only one person they want to receive all of their assets, this could be enough to warrant a will.
A will also allows someone to name an executor to settle their affairs. The executor distributes a person’s money and property—both digital and nondigital—based on the instructions in the person’s will and can be granted power and control over their online accounts. This power allows the executor to do things like deactivate social media, email, and gaming accounts; access and pay online bills; and transfer and share digital content and account access.
If the person does not name an executor in a will, the court will choose one for them. Unfortunately, the chosen executor may not be their first choice.
Debt is another point to consider. Young adults aged 18 to 23 have an average debt balance of nearly $10,000.[3] Tell your child that debts are part of an estate every bit as much as their money and property are. Debt that cannot be paid off from what they leave behind will likely disappear and will not transfer to you or other family members. But acknowledging what happens to our debt when we die can be part of the estate planning discussion.
A Will Is a Big Step into Adulthood
When a child turns 18, they may be eager to show off their new adult status. Creating a will is one of the things that only a legal adult can do. While it may not rank high on their priority list, they can benefit from knowing what a will is, how it works, and why it is important.
Talking about wills entails broaching the topic of death, which could discourage your child from taking the next step. But when they are ready to take it, they should have a foundational understanding to build on and a trusted advisor they can turn to for advice. If you would like to meet with us and your soon-to-be adult child to discuss the importance of an estate plan, please give us a call.
Four Things A High School Senior Needs to Know Before Graduating
Young adults are not known for being the most fiscally responsible people. Yet financial planning is more important than ever for a generation that is struggling with high inflation and debt and has a tendency to prioritize spending over saving.
If your advice is falling on deaf ears, try putting yourself in your child’s position and seeing the current economic environment through their eyes. Professional guidance can also help break through money management barriers and prepare a young adult for a lifetime of financial success.
Tuition Costs Have Never Been Higher
Eighty-three percent of Generation Z (those born between 1997 and 2010) say that a college education today is “very important” or “fairly important.”[4] But a growing number of zoomers are choosing to skip college and enter the job market due in large part to affordability concerns.[5]
College costs have been trending upward for the last two decades and currently average nearly $110,000 for four years at an in-state public institution and $234,512 for four years at a private university.[6]
High school seniors who pursue higher education should make sure they understand what they are signing up for when they take out student loans. Private student loan interest rates are primarily based on creditworthiness, so it is important to establish a good credit score before applying.
Student loan debt is notoriously difficult to discharge, and loan rates are typically fixed for the life of the loan. However, there are ways to manage student debts, such as interest rate discounts for automatic payment withdrawals, paying extra principal, and enrolling in federal programs such as the new Saving on a Valuable Education (SAVE) plan.
Paychecks Are Not Going As Far
While more recent high school graduates are opting not to attend college and instead enter the workforce, this choice can present its own financial challenges.
On paper, Gen Z workers are earning more than some in the older generations, but much of this comes from freelancing and rideshare jobs.[7]
Historically high inflation is eating into Gen Z’s earnings. Zoomers have been disproportionately impacted by rising prices and are spending more on essentials than preceding generations.
Gen Z is contending with 32 percent inflation in the past decade. Compared with young people 10 years ago, Gen Z is paying 31 percent more for housing, twice as much for car insurance, and 46 percent more for health insurance.[8] This can cause them to feel like they are starting further behind financially than their parents and grandparents were at their age and cannot afford the American Dream.[9]
Inflation deserves a large part of the blame for why Gen Z is living on a financial cliff. However, members of Gen Z may share some of the blame. Today’s young people have a much “softer” approach to investing and personal finance than previous generations. This approach is more about personal growth and mental well-being in the here and now than it is about saving for an uncertain future.
Three in four Gen Zers say the current economy makes them hesitate to set long-term financial goals.[10] Then again, this could be a “chicken-and-egg” scenario.
Credit Cards Are Not the Answer to Inflation
In response to higher inflation and its corollary, less discretionary income, Gen Z is racking up credit card debt at an unprecedented rate.
Eighty-four percent of Gen Zers are using credit cards, research from TransUnion shows.[11] And roughly one in seven have maxed out their cards—more than any other generation.[12] These trends are particularly worrisome because credit card interest is at an all-time high of around 22 percent.
However, there are smart ways to use cards to build credit and earn rewards for an upcoming trip or purchase. Having a balance available in an emergency can also serve as a temporary self-funded loan. But in order to take advantage of these benefits, young adults need to understand the consequences of using a credit card.
More Ways to Invest Than Ever
Younger investors are less confident that they can achieve above-average returns solely with stocks and bonds. Thus, instead of engaging in traditional investment strategies, Gen Z shows a greater preference for alternative investments such as crypto, private equity, direct investments in companies, socially responsible investing, and automated or robo-advisor investing.[13]
When looking to invest, it is important that young adults have a good strategy in place. A long-term investment strategy that relies on buying and holding specific assets is one of the best hedges against inflation.[14]Passive investing almost always beats active investing, even among money managers.[15]
Give Your Teen the Gift of Financial Literacy
The “real world” is often the crucible in which money lessons are learned the hard way. That does not mean a young adult should go off to college or enter the workforce without a basic financial education. Help your soon-to-be high school graduate establish—and meet—their financial goals by scheduling a consultation with an advisor.
[1] 2024 Wills and Estate Planning Study, Caring.com, https://www.caring.com/caregivers/estate-planning/wills-survey (last visited Aug. 27, 2024).
[2] Id.
[3] Megan DeMatteo, The Average American Has $90,460 in Debt—Here’s How Much Debt Americans Have at Every Age, CNBC (Nov. 14, 2023), https://www.cnbc.com/select/average-american-debt-by-age.
[4] Tara P. Nicola, Majority of Gen Z Consider College Education Important, Gallup (Sept. 14, 2023), https://news.gallup.com/opinion/gallup/509906/majority-gen-consider-college-education-important.aspx.
[5] Steven Schwartz, The College-to-Corporate Pipeline Is Facing Extinction. Here’s Why, FastCompany (July 10, 2024), https://www.fastcompany.com/91150442/genz-college-internet-economy.
[6] Melanie Hanson, Average Cost of College & Tuition, Educ. Data Initiative (May 28, 2024), https://educationdata.org/average-cost-of-college.
[7] Adam Palasciano, Does Gen X Make More at Work Than Millennials or Gen Z Do?, Yahoo!Finance (Feb. 25, 2024), https://finance.yahoo.com/news/does-gen-x-more-millennials-210036258.html.
[8] John L. Dorman, Gen Zers Pay More for Housing Than Millennials Did—Why It Matters, Bus. Insider (June 23, 2024), https://www.businessinsider.com/gen-z-millennials-housing-costs-insurance-debt-election-trump-biden-2024-6.
[9] Bailey Schulz & Kathleen Wong, “They Can’t Buy into That American Dream”: How Younger Workers Are Redefining Success, USA Today (Oct. 17, 2023), https://www.usatoday.com/story/money/2023/09/26/gen-z-millennials-face-unique-financial-challenges/70910672007.
[10] Intuit, Prosperity Index Study (Jan. 2023), https://www.intuit.com/blog/wp-content/uploads/2023/01/Intuit-Prosperity-Index-Report_US_Jan-2023.pdf.
[11] Gen Z Consumers Are Using Credit More, and Differently, Than Their Millennial Counterparts at the Beginning of Their Credit Journeys, TransUnion (May 8, 2024), https://newsroom.transunion.com/gen-z-using-credit-differently.
[12] Matt Egan, 1 in 7 Gen Z Credit Card Users Are “Maxed Out,” CNN (May 17, 2024), https://www.cnn.com/2024/05/17/business/gen-z-credit-card-users/index.html.
[13] Will the “Great Wealth Transfer” Transform the Markets?, Merrill, https://www.ml.com/articles/great-wealth-transfer-impact.html (last visited Aug. 27, 2024).
[14] E. Napoletano, Best Investments to Beat Inflation, Forbes (July 30, 2024), https://www.forbes.com/advisor/investing/best-investments-to-beat-inflation.
[15] Active vs. Passive Investing: What’s the Difference?, Investopedia (Sept. 6, 2023), https://www.investopedia.com/news/active-vs-passive-investing.