The day that you have long awaited or feared is just around the corner. Your son or daughter is headed to college. The last few months have been a whirlwind for you and your child since High School graduation. In the middle of gathering all the items that they may need for college success, I recommend that you schedule some time for planning for you and your family.
Besides graduating from high school, going to college and turning eighteen there comes a new set of responsibilities, liabilities, and potential unknowns.
The Triple Liability Threat of College
Cars and Parent’s Liability – As the owner of a car, you are legally responsible for the acts of the driver of any car you own, regardless of whether you are driving the car. as parents, you need to be keenly aware that you can be held vicariously liable for any injuries or other damage your child might cause because of a car accident which occurs while your child is driving a vehicle that is registered in your name.
Yes, parents, you, who have literally done nothing to cause the accident, can nevertheless face financial ruin simply by your ownership of a car with which your child mistakenly caused an accident.
Action Step: Register the car in your child’s name. If your son or daughter is legally an adult (18 years or older), he or she can register a car in his or her own name.
Action Step: Insurance cost is going to go up since the car is now owned by an eighteen-year-old. College students are more likely than other types of drivers to get into car accidents. Recognizing this, insurance carriers may very well charge more to insure your son or daughter. Here are some tips on how to defray the added costs:
- Driver’s education provides discounts.
- Most insurance carriers offer discounts for good grades.
Personal Liability Issues – College students host parties. Whether is it in their dorm, a fraternity or sorority house, an off campus living situation or even your house when they are home for school breaks. Kids – especially college students – love to celebrate. Whether at a family graduation party or a spontaneous late-night get together, college students often celebrate with alcohol. What’s worse, 65% of kids under age 21 who say they drink admit they get alcohol from family and friends. That means they get it from their parents, their friends’ parents or older siblings.
Make no mistake about this: If you provide alcohol, directly or indirectly, to someone under the legal drinking age, you can be held responsible for what happens after they have consumed it. It doesn’t matter what you did when you were younger. And it doesn’t matter what you think your personal privacy entitles you to do.
Action Step: Get an umbrella policy. An umbrella policy creates an extra buffer to protect your assets – like your house, your son or daughter’s college fund, and your retirement savings. Umbrella coverage is a supplement to, and above, whatever homeowner and vehicle coverage you already have.
Usually, the policy is based on the number of homes and cars you own, and the number of drivers in your family. Typically, such policies cost less than $500 for about $2 million in extra coverage.
Credit Cards – The Credit Card Act made it much harder for college students to establish credit. Under the act, a parent MUST be involved in the credit card application process by co-signing for their child if the child is under 21 years old and has no income. Gone are the days of credit card representatives on campus giving away freebies such as mugs, shirts and even iPads in exchange for filling out a credit card application.
Action Step: Co-signing parents should keep their college-bound child’s credit limits low – say $500-$1,000. Furthermore, parents should make clear to their college-bound children that the credit card is to be used in cases of emergency only or very specific purposes, such as buying books. Set up online account access so you can have oversight to the account.
Arranging for your college-bound child to have their own credit card helps students establish and build credit, which in turn will make it easier in the long run for you to cut the cord, as opposed to having your kids be financially dependent on you.
Sending a child away to college is a landmark event in the lives of many families. It often marks the transition from childhood to adulthood. While college students take on more and more grownup responsibilities, it’s important for parents to remember that they may still be liable for what their children do even after they have left the nest.
A little time spent reviewing insurance policies, car registration, credit card and other legal and financial documents may be very worthwhile if something unfortunate befalls your college student. Taking the advice spelled out above may mean the difference between protecting your assets and your child’s college fund – or facing serious financial consequences.
Want to implement these action steps and do not know where to start? Give us a call and we can connect you to the right professional.
Michael Tannery CPA CDFA® AIF® ● CEO
Be A Financial Olympian™