Whether you're gleefully anticipating the empty nest or dreading the day you drive your offspring to Faraway U., the transition to the college years can feel tumultuous. But one thing that can help make this time less stressful for you as a parent is taking steps to help protect your assets. Consider these five strategies.
1. Turn higher education into financial education.
You've probably been discussing the cost of college with your children for many years. But as Wells Fargo Private Bank Senior Vice President and Wealth Advisor Amir Mossanen points out, the application process is an ideal opportunity to communicate the transition and responsibilities ahead.
"The college that they pick will no doubt have financial impact — whether they stay in state, live at home, or go elsewhere," he says.
"What a great time to start involving the children in understanding the impact of the choices they make." Painting clear financial portraits and evaluating expense and return can also help kids avoid taking their college years for granted. The Hands on Banking Program for Young Adults, and in particular Section 6: "School & $," can help empower all members of the family with decision-making tools.
2. Undergo a risk review.
Sure, you have all sorts of insurance policies to help protect your assets. But what would happen if you signed a lease on an apartment for your college-bound child and there was a fire that triggered a lawsuit? What if your son or daughter were driving to a fraternity party in a car with a title in your name, and there was a crash that caused injuries to others? "Trying to put the pieces of protection together, if you're not an expert, may leave huge gaps in liability that you're exposed to," says Mossanen. "A risk review by Wells Fargo Insurance Risk Management can help identify the gaps and look at the titling of assets."
3. Write it down.
Let's say you provide your child with a credit card (in your name, so that it has a higher credit limit) to be used only in case of emergency at college. But what's an emergency? "Rules should be written," says Mossanen, "because it's amazing what people will hear when they want to hear it." That way, you won't get stuck with the bill when your child decides that a last-minute first-class flight to Brazil was an emergency. The same holds true for how the child should spend any allowance that you provide for his or her monthly expenses. A written plan puts everyone on the same page.
4. Consider a trust.
"Trusts provide good asset protection," says Mossanen, who explains that trusts can remove some risk from buying and renting real estate, for example. A third-party trustee, meanwhile, can help put some emotional distance between children and their parents. A trust also could potentially help children manage assets during and after college. "They can have lasting benefits for the children for a really long time," says Mossanen, who also raises a word of caution about incentive trusts, which can promise children a dollar for each dollar they earn. That may spur earning, but it may penalize philanthropic careers or provide a narrow definition of success.
5. Clarify the process — and keep communicating.
"You should always have a process, whether it's asking for funds or making financial decisions," says Mossanen. Maybe the process is to shop at three places to make comparisons before buying an item. Or perhaps you can schedule a face-to-face meeting one weekend a quarter to discuss money. Put rules in place, including around how the child uses social media. "Actual conversations are diminishing, but information is increasing," Mossanen says of social media and digital communication and their impact on family wealth and family businesses. "A child could be haunted for years for some mistake he made at college, so you should discuss rules around the reputation of the family."