Why Every College Student Should Have an Incapacity Plan

Happy Graduate Laughing

Q. My 18-year old daughter, Madison, will be a freshman in college in the fall. At her high school graduation party, my friend Phil told me that he is already doing estate planning for his own daughter, and he told me that it is really important and I should do it for my daughter. Is this really something that a college student needs? My daughter doesn’t own any property or have any assets, except the used car I bought her for her birthday, which is actually still in my name so it doesn’t really belong to her. Does someone this young and with no assets really need an estate plan?

A. Graduating from high school and getting ready for college is an exciting time in a young adult’s life. However, with all the preparation that is necessary, most young adults and their families overlook one of the most important things they should do upon turning age 18: incapacity planning, which some attorneys call estate planning. Incapacity planning is typically done as a part of estate planning, but can also be done on a stand-alone basis outside of planning for the distribution of estate assets upon death.

Few 18-year-olds and their parents consider the need for an estate plan, simply because, as you mentioned, they do not have estates or families to plan for. However, your friend Phil is doing the right thing in being proactive. Why? Because in the eyes of the law, your daughter is now an adult, which makes having certain medical and financial documentation in place critical.

Here’s an example to help explain why: Let’s say two college students are coming home from a party and are in a car accident. One is seriously injured and unconscious. His or her mom and dad get a call that night, and jump into the car and set out for the hospital, fully expecting to talk to the doctors, sign off on medical care, and make key decisions during the child’s recovery. Although the parents expect to have a voice in the medical decisions, they come to find out that once children reach the age of majority, privacy laws generally protect their medical and financial information. In other words, parents are no longer entitled to see their child’s medical and financial records and make most decisions on their behalf.

In most cases, parents incorrectly assume that because they are paying for college or if the child is still living under their roof, that they have the right to make legal decisions, but that isn’t so once they turn 18 and become adults. The Health Insurance Portability and Accountability Act (HIPPA) protects the privacy of all adults’ medical records and may prohibit even parents from receiving medical information or making informed decisions for the child – even if that child is unconscious and unable to communicate. And, this is regardless of whether the child is living at home or is financially dependent on you.

What sometimes happens in these situations is that physicians will identify a parent as a health care advocate who has authority to make decisions on behalf of an adult child. But identifying a parent may not be easy in blended families where divorced parents and stepparents may not agree on a medical course of action. And this may happen when time is of the essence and every second counts.

Therefore, it is important for young adults to set up an incapacity plan that appoints trusted individuals to make medical and financial decisions in the event they are unable to do so.

Types of Documents a College Student Needs

At a minimum, here are the documents every college student should have:

1. Advanced Medical Directive

An Advance Medical Directive (which includes a Medical Power of Attorney) authorizes another person (called your “Medical Agent”), to make decisions with respect to your medical care in the event that you are physically or mentally unable to do so, as certified by two physicians.

This document allows a student to name an agent (presently his or her parent or parents) to receive vital healthcare information and make healthcare decisions for the student in the event the student is unable to do so, and permits a student to specify certain treatment preferences regarding such care. This document only becomes effective when a student cannot (or is unwilling) to make health decisions for himself or herself.

For added peace of mind, we register the Advance Medical Directives of our clients with DocuBank. We’ve heard too many horror stories, and we want to ensure that doctors and loved ones can immediately obtain your Advance Medical Directive so that our clients can get the best care.

2. General Financial Power of Attorney

A General Power of Attorney is the most important legal document that a person can have, and is an essential part of every Incapacity Plan and Estate Plan. A General Financial Power of Attorney (always “durable” when used in connection with estate planning) authorizes your agent, sometimes called “Attorney in Fact,” to act on your behalf and sign your name to financial and/or legal documents.

With a General Financial Power of Attorney in place, a designated agent could pay bills, handle insurance claims, maintain bank accounts, and take care of other financial matters for a young-adult, if the need arose. The power may become effective immediately or it may be “springing” – which means it only becomes effective upon the occurrence of a later event (e.g., a student’s incapacity as certified by two physicians).

3. Authorization to Disclose Protected Health Information.

The Health Insurance Portability and Accountability Act (HIPAA) sets out rules and limits on who can look at and receive an individual’s medical information. This document authorizes healthcare providers to disclose a student’s medical information to certain named individuals. In the unfortunate scenario where a student experiences a medical emergency, this document would give parents, or another named individual, the authority to receive information from healthcare providers regarding the student’s healthcare status and related information.

Why Now Is Also a Good Time to Update Your Own Estate Plan

When your child was under 18 years old, you could rest assured that, if you were to pass away before your child became an adult, your child would be taken care of by the guardian named in your Will (you do have one, right?).

Now that your child is no longer a minor, it is an ideal time to rethink your estate plan. Why? Because if you pass away, your child will not automatically be sent to live with a guardian. This could be a scary thought if your child still struggles to cook ramen noodles.

How A Trust Can Protect Your College Student

When you leave money and/or property in your Will to your college student, there’s a good chance your child might just blow it all on frivolous purchases, because the rations part of the human brain is not fully developed until age 25. If by chance your child saves the money wisely, the could still be taken away years later by creditors or a messy divorce.

If you don’t have one already, a Revocable Living Trust gives you control over what happens to the inheritance money. It will also keep the cash out of the hands of creditors and future ex-spouses. In addition, you can use a trust to spread out the cash your college student receives over time. For example, you might want to split up the money into yearly payments, or distribute a percentage of the trust at specific ages (for example, 33% at age 25, 50% of the balance at age 30, and the remaining balance at age 35).

Another thing parents can do is to create an incentive trust to motivate your child to do well when you’re no longer around to give your famous lectures. With an incentive trust, you’ll choose a trustee to manage your trust, and distribute funds when your beneficiary meets your requirements. For example, you might want to give your children a sum of cash when they graduate college, when they get married, or when they get their first full-time job after college.

Incapacity Planning is Important for Everyone

We here at the Farr Law Firm have strategies in place to help adults of all ages plan for themselves and their loved ones, whether you’re a young-adult, a middle-aged person, or a senior. If you or members of your family have not done Incapacity Planning or Estate Planning, or if you would like to make updates to your existing planning documents, please contact us as soon as possible to make an appointment for a no-cost initial consultation:

Fairfax Estate Planning: 703-691-1888
Fredericksburg Estate Planning: 540-479-1435
Rockville Estate Planning: 301-519-8041
DC Estate Planning: 202-587-2797

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