Today, we:
- Describe must-have legal documents for young adults.
- Identify college-funding strategies for your kids and grandkids.
- Stress the #1 college planning (savings) tip.
When Children Turn Age 18 (or Older)
Imagine receiving a text from your child’s college roommate, saying your child is in the hospital.
Or, you discover your 26-year-old signed herself into a behavioral health facility.
Instinctively, you call the hospital/facility to understand what’s happening. However, no one will answer your questions.
Why? Because of HIPAA laws (Health Insurance Portability and Accountability Act).
Upon reaching age 18, your child/grandchild is a legal adult and, therefore, has the right to medical privacy—leaving many caregivers unprepared in a medical emergency.
In general, health care providers can’t disclose a young adult’s health information without consent from the patient.
Must-Have Legal Documents for Young Adults
When a child turns age 18, make sure they maintain no less than three legal documents:
#1—HIPAA Release: Grants permission for health care providers and others to share an individual’s health information with specific individuals, e.g., discloses diagnosis and treatment.
#2—Health Care Proxy/Medical Power of Attorney: Names individual(s) permitted to make medical decisions on behalf of another individual, in the event the latter is unable to make their own decisions, e.g., due to illness or incapacity.
#3—Durable Power of Attorney (DPOA): Permits another person (agent) the authority to make decisions and act on behalf of the person creating the power of attorney (principal). For example, DPOAs can be useful for young adults when traveling abroad, particularly if they need assistance back home with their financial or legal matters.
Resource: The Mama Bear Legal Forms website is a potentially helpful resource for creating young adult basic legal forms.
When it comes to legal matters, however, it’s always a good idea to consult with your estate attorney. If you need a referral, we’re happy to provide one.
Other Documents
FERPA Waiver: Lets students allow parents access to educational information, e.g., grades, course selection, tuition payment details and more. This form is available through the child’s college.
Living Will/Advanced Directive: Expresses your adult child’s desires regarding life-extending medical treatments. (Sure they’re still young, but they’re now legally able to articulate their medical preferences. These conversations are often difficult, but necessary.)
Helping Children & Grandchildren Pay for College
There are many ways to help your child or grandchild save and pay for college. Below, we discuss several strategies and highlight a costly mistake to avoid.
Most Popular Approach
A vital college funding strategy is investing in a 529 plan, usable not only for college but also for K-12 tuition (up to $10,000 yearly withdrawal for K-12).
529 Plan Benefits Include:
Tax-Advantaged: Investment earnings grow tax-free. For example, if your initial investment is $20,000 and grows to $45,000, you don’t pay taxes on the growth ($25,000) or on qualified withdrawals, e.g., tuition, books, etc.
Also, married couples in Massachusetts filing jointly can deduct up to $2,000 on state income tax, and single filers up to $1,000.
Control & Ownership Flexibility: You own the account and name a child as a beneficiary. You can change beneficiaries any time. It’s your money.
Convert Unused Funds to Roth IRA: Starting in 2024, if your beneficiary doesn’t need all the 529 funds, you can move up to $35,000 (lifetime limit per beneficiary) into a Roth IRA. There are several restrictions, including:
- 529 plan must have existed for at least 15 years.
- Roth must be in the name of the 529 plan beneficiary.
- Contributions made in the last five years may not roll over.
- Annual contribution limits apply, currently $6,500.
It’s easy to set up a 529 plan. All you need is your beneficiary’s social security number and date of birth. Reach out anytime for assistance.
#1 College Savings Tip
Without a doubt, the number one college savings tip is: have your student complete their Bachelor of Arts or Science degree in four years, the typical academic path offered by most colleges.
According to the National Center for Education Statistics (NCES), “In 2020, the overall 6-year graduation rate for first-time, full-time undergraduate students who began seeking a bachelor’s degree at 4-year degree-granting institutions in fall 2014 was 64 percent.”
That’s two extra years of college costs!
The average total cost for a year of college at a four-year school, including tuition, fees, housing, books, supplies and other expenses is almost $36,000, roughly $144,000 over the course of four years.
The key to keeping your child or grandchild on a four-year track is ensuring they have clear and frequent communication with their academic advisor, e.g., if they drop a class, make sure they make it up over the summer or during winter break. This is especially true if they change majors, since they’ll likely need to make up classes.
Other College Savings Tips
Complete the FAFSA® application early, since the money gets used up. Also, apply for private scholarships now and throughout college life.
Finally, broaden your search.
For instance, consider tier two schools over tier one to elevate your rock-star status and likely secure a larger merit scholarship (money you don’t have to repay). Also, it’s likely that the farther you go from home, the bigger the merit scholarship.
3 Tips for Helping Grandkids (Already) Attending College
#1—Give your grandchild additional money (beyond the 529). However, pay the college directly. Otherwise, you’re subject to the annual IRS $17,000 gifting limit (per spouse).
#2—Help repay your grandchild’s loans. What’s nice about this approach is your grandchild has skin in the game, i.e., they graduated.
#3—Loan money to your grandchild. However, with the understanding repayment isn’t guaranteed. Here’s a simple family loan agreement form.
Comments or Questions
Your comments and questions are always encouraged. Please reach out anytime.
–David Bunker, Financial Advisor & Fiduciary
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