Planning for your child becoming an adult
Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
Your child is probably focused on things like getting a driver’s license, starting college or searching for a job, but there are some additional important considerations to focus on as he or she reaches this milestone.
Get basic planning documents in order
The most important document to have in place once your child reaches majority is the health care directive, which gives someone (usually a parent) the authority both to make health care decisions if your child is unable to do so himself or herself and the right to get information about your child’s health care from doctors and hospitals. If your child is unable to make his or her own decisions (for example, he or she falls and loses consciousness), it’s important to make sure that someone trustworthy has the authority to make decisions on their behalf. Once your child is an adult, you are no longer entitled to get information about his or her health care or participate in decisions about that care absent a proper designation in a health care directive.
In addition to a health care directive, basic planning documents include:
- A will or revocable trust, which is necessary if, upon death, your child wants his or her assets (including any custodial accounts) to go to someone other than you – in most states, parents are the default heirs if the deceased has no spouse or children.
- A power of attorney, which gives someone the authority to make financial decisions for your child if necessary.
- A living will, which gives the individual designated in the health care directive guidance about what your child would want in the event your child is unable to express his or her wishes.
If you and your child do nothing else, we believe it’s most important to at least have a health care directive put in place.
Manage custodial accounts
You may have established a custodial account (UGMA or UTMA) in your child’s name to save for expenses such as college. When a child reaches the age of majority (in many states, age 21), he or she automatically becomes the owner of any custodial accounts you (or anyone else) have created. These can include bank accounts and brokerage accounts that hold stocks and bonds, and sometimes other types of investments.
Note that many financial institutions will notify your child about the custodial account (and the need to convert it to an individual, non-custodial account) shortly before he or she reaches the relevant age. If you are a parent whose child is reaching the age at which custodial accounts have to be turned over, are you comfortable with the amount of money that your child will be receiving? Some parents may be concerned about their children receiving too much money all at once without enough experience to know how best to handle it. If you have concerns about an impending custodial transfer, you should contact your advisor to discuss your options.
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Understand minority trusts
You may have set up a “minority trust” for your child instead of a custodial account. At the age specified in the trust, but no later than age 21, your child must be given access to the assets in the trust for a limited period of time (typically 30 days). During this period, your child could withdraw the assets and terminate the trust. If you have concerns about the implications or want to discuss strategies to minimize the likelihood that assets will be distributed, you should contact your advisor in advance of your child reaching the specified age.
Consider similar implications for “Crummey” trusts
You may have created a trust that gives the beneficiaries a right of withdrawal over contributions made to the trust from time to time, such as an insurance trust or any other trust that receives annual exclusion gifts. While your children are minors, their withdrawal rights are managed by their guardians (i.e., you). Once your child reaches the age of majority, he or she must be the one to receive withdrawal notices for the contributions and decide whether or not to exercise withdrawal rights.
Emphasize the importance of building credit
Now that your child is becoming an adult in the eyes of the law, you should also think about either a companion credit card or separate credit card for your child to allow him or her to begin to build a credit score. If your child is living away from home and you are paying rent or room and board, consider putting utilities or other separately billed expenses in your child’s name. You or your child should also check with the credit bureaus to make sure that there hasn’t been any attempted fraud with your child’s Social Security number – and make sure your child understands the importance of credit monitoring and the need for constant vigilance.
Encourage your child’s civic participation, starting with voter registration
Voting is a basic responsibility of citizenship, and we encourage your child to register. Note that registering to vote may also put your child on your local jury duty list; if your child is away for school or for another reason, consider having him or her register to vote where he or she is living rather than at your address.
Think ahead for additional age-related considerations
In addition to the decisions facing parents and children at the age of majority or age 21, here are a couple other age triggers to keep in mind over the next few years:
- At age 24, or sooner if a child earns more than half of his or her support rather than receiving it from his or her parents, a child’s investment income will no longer be subject to the “kiddie tax,” which taxes a child’s investment income at the parent’s tax rate.
- At age 26, children are no longer eligible to be covered by their parents’ health insurance and will have to find their own coverage, either through work, the state exchanges, or even certain associations (e.g., alumni associations, unions) of which they are a member.
Talk to a J.P. Morgan professional if you would like to review your plan or if you have any other questions, in light of this important milestone in your child’s life.
Frequently asked questions about planning for your child to become an adult
A custodial account refers to an account, generally created by a parent for the benefit of a minor child or by a grandparent for the benefit of a minor grandchild, in which the custodian controls how money is invested and spent. When you put money into a custodial account, you make an irrevocable gift to the minor beneficiary of the account, even though the minor does not control the account. The minor’s parent or the account creator typically acts as the account’s custodian. The most common type of custodial account is referred to as a Uniform Transfers to Minors Act (UTMA) account, which is a type of custodial account that can hold virtually any assets, including stocks.
A sound estate plan can help carry out your wishes after you pass away and make arrangements for someone to make decisions on your behalf if you’re unable to do so.
The basic estate planning documents include a will and/or a revocable (living) trust, a financial power of attorney, a health care proxy or health care power of attorney, and a living will or advanced health care directive. These basic documents will allow you to determine who gets what (and when) after you die, as well as designate someone to make financial and health related decisions if you become unable to.
It’s also important to organize other documents that will make it easier for your survivors to carry out your wishes: nomination of guardians if you have minor children, life insurance policies, proof of identity (Social Security card, passport, and driver license), the deed to your home, stock or bond certificates, funeral and burial instructions, and digital account information among them.
When you give inheritance money depends on your family’s financial situation. However, some parents choose to give some or all of the money they want to their children to inherit before the parents pass away, which can be beneficial depending on your family’s goals. There is potential to save on estate taxes (if you are going to be subject to estate taxes) by gifting to your children during your lifetime. This process can be complex so it’s important to consult with your legal and tax professionals prior to making any decisions.
Gifts you make to a trust usually don’t qualify for the annual gift-tax exclusion ($19,000 per person in 2026). A “Crummey” Trust is a trust that does qualify for annual exclusion gifts – so you get the benefit of using your annual exclusion but also get to shelter the money you’re giving to your beneficiaries in a trust. A “Crummey” power is a limited withdrawal right; a “Crummey” trust gives your beneficiaries that limited withdrawal right, which is what allows you to use your annual exclusion for this gift to a trust that otherwise wouldn’t qualify. “Crummey” trusts are one of the basic ways to use the annual exclusion without making outright gifts.
In many cases, the easiest way to open a custodial account is online or at a physical bank location. You just need the child’s name, birthdate and Social Security number. While the person you’re opening it for must be a minor (under the age of 18), the account can be opened by a parent, grandparent, guardian or even family friend – anyone who is an adult, basically.
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