Your Child is Turning 18: Handling Healthcare, Academics, and Finances Together
As your child blows out the candles on their 18th birthday, you may still see your baby girl or boy. But in the eyes of the law your child is considered a legal adult in most states. This means they can vote, buy a lottery ticket, or get a tattoo without your permission. Even if you've prepared them for what life has in store, many young adults (and their parents) are surprised to learn the responsibilities they will assume independently, including managing their own healthcare, academics, and finances.
Parents are sometimes surprised to learn that after their child turns 18, they can no longer make doctor's appointments for them or speak with their child's doctor, even if that child is on their insurance plan. They also may not know that they lose their ability to directly access school grades or assist their children with money management.1,2
Therefore, it's wise to understand what changes when your child hits this milestone birthday and determine if you and your child want to take any actions to maintain your involvement. Following are three areas we recommend reviewing together.
Teaming Up on Healthcare, Academics, and Finances
Your child's doctor can't speak with you or share records without permission, even if that child is still on your insurance. How can you prepare?
Speak to Your Child about Signing a HIPAA Authorization Document
The Health Insurance Portability and Accountability Act (HIPAA) is the privacy law that prevents healthcare providers from disclosing your child's current medical condition or medical records to you. If you and your child decide to share healthcare decisions, they can sign a HIPAA authorization document, which you can keep on file. If there are certain areas you don't wish to be involved in, this authorization document can be limited in scope or exclude specific topics.
Consider a Healthcare Power of Attorney
You are likely the point of contact in case of an emergency. If an emergency does come to pass, you and your child may benefit from having a healthcare power of attorney, also known as a healthcare proxy. This document allows you to make important healthcare decisions on behalf of an adult child who may be physically or mentally unable to decide independently.
Once your child turns 18, you will no longer have direct access to their educational records. For many parents, this access is essential to their agreement to pay educational costs. How can you prepare?
Acquire Written Consent for Educational Records
The Family Educational Rights and Privacy Act (FERPA) requires that students over 18 give written consent before their school will release any educational records, including GPA, credits, scholarship status, disciplinary action, tuition information, and records maintained by the campus health clinic. A FERPA authorization will allow you access to these records.2
In most states, 18-year-olds can apply for credit cards, open bank or brokerage accounts, sign contracts, purchase real estate, or even apply for a mortgage. Depending on the state, your child may also automatically assume control over any Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA), and Roth IRA accounts in their name. These responsibilities and the temptation that comes with them may be too much for some young adults to handle by themselves initially. How can you prepare?
Consider a Financial Power of Attorney
Like a healthcare proxy, a financial power of attorney allows you to make financial decisions for your child and access their financial records and accounts. With this document, you can help your child with their financial affairs, pay student loan bills, cover car payments, check bank balances, and pay taxes. Exercising this authority may help your child make more informed financial decisions.1
UGMA and UTMA accounts are all-purpose savings and investment accounts and are often used to save for college. They take the form of a trust. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to make minimum annual withdrawals.
As Your Child Approaches 18, Plan For More Than the Party
You’ve done a great job raising your child and giving them the tools they need to live a happy and successful life. If they are close to turning 18, you should take the opportunity to sit them down and coach them on their transition to full medical, academic, and financial autonomy.
As financial professionals, we can help you suggest strategies to stay involved in important aspects of your child's life. We are also happy to work with your attorney to ensure everyone is on the same page. Please contact us if you would like to discuss this in more detail.
1 RaisingTeensToday.com, September 30, 2023
2 Investopedia, June 22, 2022