Brann & Isaacson Fall Estate Planning Alert: Back to School Estate Planning

Estate Planning Alert:

As the summer draws to an end, many of us are sending children back to school; older children and grandchildren will be heading off to college.

If your child is currently 18 years of age or older, the law regards her or him as an adult. Healthcare providers, financial institutions, and even the educational institution your child is attending are no longer required, and are often not permitted, to share information with you regarding your child’s health, finances or grades. Accordingly, we recommend that all children age 18 and older execute four key documents to ensure that a parent or other guardian will be permitted to receive information and make decisions on the child’s behalf if necessary in the event of a medical emergency or even a temporary absence (such as during a semester abroad):

• Advance Health-Care Directive: Gives a parent/agent authority to make health-care decisions for a child in the event the child is unable to make such decisions him- or herself. May include specific wishes regarding end-of-life care and organ donation.
• HIPAA Release: Allows health-care providers to release information regarding condition and care to individuals named in the release.
• Durable Power of Attorney: Gives a parent/agent authority to manage financial or legal matters on the child’s behalf.
• FERPA Release: Allows your child’s school to release information to a parent or other individual about the child’s academic performance. Most schools have their own form.

A child owning significant assets in her or his own name, such as an UTMA account that has been established for her or his benefit or shares of stock in a family owned business, should also sign a short Will directing to whom her or his property should be given in the event of an accident. Without a Will, the child’s assets will pass according to state law (the assets do not pass to the state). In Maine, unless the child is survived by a child, the child’s assets will pass ½ to each parent. Unfortunately, we have seen more than one instance in which a child’s untimely death resulted in family assets passing to an ex-spouse who is not part of the family from whom the assets came, rather than to the child’s other siblings.

Many children going off to college are also incurring some student loan debt to finance their education. You should consider whether there are financial ramifications for you in the unlikely event that your child passes away holding such student loan debt. In general, Federal student loans (those administered by the U.S. Department of Education) are forgiven upon the death of the student. Parent PLUS loans obtained by a parent on behalf of a dependent student are generally forgiven on the death of either the parent/borrower or on the death of the student on whose behalf the loan was obtained.

For private student loans, however, there often is no automatic forgiveness upon the death of the student. If you have co-signed a private student loan with your child, you will generally remain responsible for payments on the outstanding balance if the child passes away. In some extreme situations, the lending agreement may contain an acceleration clause, which calls the entire outstanding balance of the loan due immediately. You should review the loan documents carefully before co-signing any loan with your child. In the event you do co-sign on a private student loan, you should consider purchasing life insurance on the life of your child in the amount needed to pay off any such debt. Term life insurance policies are generally quite affordable on the lives of young and healthy college students. Finally, if you have taken out private loans in your own name to finance your child’s college education, you may wish to consider increasing the amount of life insurance you own to cover such additional debt in the event you pass away prior to its complete repayment.

As always, we welcome your feedback and comments!