T here's no limit to how far a mother will go to protect her children. From the minute they're born, a child's safety and wellbeing take top priority in a parent's life.
Parents see to it every day, from cooking healthy meals and doing the laundry to making sure children wear bike helmets and talking about stranger danger. But it's important to look at the big picture, too.
Most parents know the basics: You have to carry enough insurance on you and your child. You must have a will.
But there are a few other tricky areas where kids, the law and family finances cross paths.
For the third installment of our Family Matters series, we'll give you an overview of three oft-misunderstood areas: child identity theft, adoption and requirements for college savings plans. For details on family financial planning, development of a will, insurance requirements, divorce and custody disputes, please see our earlier “Family Matters” stories at YourLCP.com.
Child Identity Theft
Most of us have heard the warnings about identity theft: Safeguard your Social Security number, shred any financial documents and check your credit report periodically for any suspicious activity. But when it comes to our kids, it's easy to overlook such precautions — kids don't have credit or identities worth stealing, right?
Not according to Sergeant Trevor Shelor, crime prevention specialist with the Charleston Police Department.
“Identity theft can be every bit as devastating to your kids, except they don't know it yet,” he said. “If kids don't have credit, they don't have bad credit. A person could wind up with your child's Social Security number, and they could put that on a job employment application, an application to buy a set of tires, a cell phone or something like that and then go 10 or 15 years without paying bills. So when your kid is old enough to be wanting a college loan or a job, all of a sudden it comes up with a whole bunch of crooked credit that he never knew about.”
According at AllClear ID, an identity protection alert network, the percentage of identity theft victims under 5 years old more than doubled in 2012 compared to 2011 — an increase of 105 percent. The rise shows thieves seem to be targeting younger victims because they can use their information undetected for a longer period of time.
Social Security numbers are the key to child identity theft, Shelor said. If a thief learns your child's Social Security number, with or without other information such as name and date of birth, they can start establishing and abusing your child's credit. Thieves obtain Social Security numbers in a variety of ways, including stealing them from paperwork or computer data, buying them from illegal lists of valid numbers online and even predicting them based on the formula the IRS uses to assign new Social Security numbers to newborns, Shelor said.
The first step to protecting your children is safeguarding these numbers. Keep Social Security cards and information in a secure, locked place and be careful about writing the numbers down on forms for school, sports teams and other activities, Shelor said.
“A lot of people are just too fast and loose with their Social Security numbers,” he said. “They needed to be safeguarded, and I think there's been a lapse of that over the past 20 years or so.”
The next step is checking for misuse of your children's Social Security numbers, Shelor said. When you check your own credit report, run a report of your child's credit, too. You can get a free copy of your credit report every year from the major credit reporting companies — Equifax, Experian and TransUnion. Shelor suggests running a report with one of the three companies every four months rather than checking all three at once.
While checking your child's credit report is good, it doesn't check for all identity theft. According to AllClear ID, these reports search for matches on name plus date of birth plus Social Security number. Therefore they will not detect if a child's Social Security number has been found associated with another name and date of birth.
To cover all your bases, you can request a free ChildScan Report from AllClear ID for a one-time scan of your child's Social Security number. You can also contact the credit bureaus and request a manual search that will check your child's Social Security number only.
If at any time you discover an anomaly in your child's credit report, report it to the Federal Trade Commission, Shelor said. The FTC can offer you protection on that Social Security number and flag it against any future use. Once you have a file number with the FTC, you can also file a report with the police department.
“Most agencies are better now than they were 15 years ago about going ahead and making the report, even if the identity is being used by a thief out of their jurisdiction,” Shelor said. “If it gets unfounded, then it gets unfounded. But at least it gets documented … that the identity information was taken.”
With documentation from police the FTC, you can start defending your child against bad credit, Shelor said. It takes a lot of time, up to seven years or more, to get rid of all the fraudulent accounts. But it's important to stay vigilant, he said.
“If you find an anomaly, don't say you'll start on it next Tuesday when you have time,” Shelor said. “Start calling on it immediately, that minute, because every day that you delay is another day some meth addict in a shack with a computer connection is doing something else with your kid's Social Security number.”
How to Handle Adoption
For parents new to the idea of adoption, the process can seem like a daunting undertaking, a confusing mix of courtrooms, lawyers and consent papers. Adoption lawyer Emily McDaniel Barrett, with the law offices of Thomas P. Lowndes, Jr. in downtown Charleston, said the first step is learning how the process works.
There are three main ways to adopt, Barrett said. The first is to go through the Department of Social Services.
“That's going to be a child that's taken through the foster care system,” she said. “That is a process where you have to wait for DSS to terminate the rights of the biological parents, so the child tends to be older. DSS adoptions are not for the faint of heart, but there are some amazing people out there who have their doors open to children who are older and might have some emotional problems.”
The second type is international adoption, where you're going overseas to find a child. To adopt a child from a foreign country, you must work with an adoption agency that's accredited in that country, Barrett said. However, when you get back, you can hire a local attorney to domesticate your foreign adoption.
The third type of adoption is a private domestic adoption, which Barrett specializes in. In this process, adoptive parents are matched with a birth mother through an adoption agency or an adoption attorney. Most private domestic adoptions are of newborns who are matched while the birth mother is still pregnant, Barrett said.
The cost and length of time required for adoption varies for each situation, Barrett said.
Going through DSS is typically the longest process, but usually costs the least, she said. According to the National Adoption Information Clearinghouse, it can range from nothing up to $2,500 or more.
“Parents are losing their rights for whatever reason, and you've got all those court proceedings. DSS has to give the birth parents a chance to get their lives turned around, so it can be longer, and it can be frustrating,” Barrett says.
International adoptions also can take a long time to complete. The National Adoption Information Clearinghouse lists fees ranging from $7,000 to $25,000, which doesn't include parents' travel expenses, lodging or any medical care the child may need.
The cost and duration for a private domestic adoption is unique for every situation, Barrett said. The process begins, and the first check is usually written, when the couple hires an adoption investigator to do a home study. After passing the home study, the couple's profile is available to be matched with a birth mother, based on their budget and the needs and circumstances of the birth mother and child.
“From the time you get your home study and start looking to the time you're matched, that is wide open,” Barrett said. “I've had clients who've matched as quickly as 24 hours to other clients who've taken over two years to get matched. That's the hardest part for adoptive parents, waiting for that match. I always tell my clients, 'Your child will come to you when it's time.' ”
The cost for a private domestic adoption can vary widely by circumstance, Barrett said. The biggest variable is usually the birth mother's living expenses, which she can request the adoptive parents to pay under South Carolina law. The fees are also higher if the adoption is taking place between different states, not including the added travel and lodging expenses for the adoptive parents. Barrett said her adoptions usually range from $10,000 to $20,000.
“In a nutshell, they're not cheap,” Barrett said. “But there are grants out there, there's the adoption tax credit, there are state subsidies, some large employers have adoption tax benefits. There is financial help for people who need it.”
Barrett said it's important to remember that adoption is not like what you see on TV. Today, most adoptions are open, and sometimes even include visitation for the birth mother. And that's not always a bad thing, Barrett said.
“Closed adoptions are not healthy for anyone,” Barrett said. “It's not healthy for the birth mother, for the child or for you when this child is older asking you all sorts of questions you can't answer. Many times, adoptive parents are surprised. They go into it absolutely terrified of what is going to happen and then they get to know the birth mother and they call me back and say, 'Wow, we really like her.'”
After the child is born and the biological parents sign the consent papers, the action can be filed at the courthouse, Barrett said. From there, a 90-day waiting period is required from the time the pleadings are filed until the hearing can be finalized. So the process ends up extending about three months after the baby is born, Barrett said.
Another common type of adoption is inner-family adoptions, when the child is related to the adoptive parents by blood or marriage, Barrett said. Stepparents can also adopt their stepchildren if the biological parent has signed consent or had their rights terminated, she said. Both of these types of adoptions are less expensive and don't take as long because a home study is not required and the 90-day waiting period is waived, Barrett said.
Saving for College
By David Slade/Post and Courier
Think of a 529 plan like a retirement plan, but for college.
Like a Roth Individual Retirement Account, contributions to Future Scholar can be invested in a variety of ways such as stock funds, bond funds and a money market account, and there are no state or federal taxes due on investment gains when the money is withdrawn, so long as it's used for the intended purpose. So if you put some money in a Future Scholar fund when junior is a baby and the fund's worth three times as much when he goes to college, those gains are not taxed.
In a 529 plan, the intended purpose is paying for the named beneficiary's education expenses. Nonqualified withdrawals can trigger a 10 percent penalty and taxes on earnings, just like if you withdraw retirement funds too early and trigger penalties.
Unlike an IRA, South Carolina residents with a Future Scholar account can claim a state tax deduction for the amount they put in. For most people, that means getting 7 percent of the money back, and there's no waiting period before you can use the contributed funds.
That's a very important feature of South Carolina's 529 plan. People can put money in, take it right back out and still get the tax deduction. That means people with kids in college right now can use Future Scholar to get some tax savings by contributing funds to a Future Scholar account before using those funds to pay for tuition or even room and board.
For long-term savers, that tax deduction lets you boost the amount you can afford to save. For example, someone who decides to contribute $100 a month ($1,200 a year) would save $84 in S.C. income tax, nearly enough to cover one monthly contribution. Think of it like the matching funds that some companies offer for 401(k) contributions.
Some key points:
• The funds are controlled by the owner of the fund, not the beneficiary. The account owner is typically a parent or grandparent.
• Funds can be used for higher education expense at accredited institutions in any state.
• Eligible expenses include tuition, fees, room, board, books, supplies and equipment.
• If funds aren't needed for the original beneficiary of the account, a different beneficiary can be named.
• If the intended beneficiary receives scholarship money, an equal amount can be withdrawn from the 529 plan without the 10 percent penalty, but the withdrawal would be taxed.
• Funds in a 529 plan are counted as parental assets in federal financial aid calculations, which is more favorable than having funds counted as the college-going child's assets. That means just 5.64 percent of the 529 plan balance would be counted in financial aid calculations, and qualified withdrawals aren't counted as income.
• In South Carolina, the 529 plan is called a “Future Scholar” plan. You can set up an account online, download enrollment forms or call 888-244-5674. You could have a financial adviser set up an account, but don't do that. There are significant fees involved with going through an adviser, plus higher ongoing fund
• There are no fees for setting up a “direct” account yourself other than the small management fees associated with the different funds. Management fees, typically a fraction of 1 percent of the value of your holdings, are taken from the fund balances.
• College savers have the option of choosing a fund designed to put the decision making process on auto-pilot. The portfolio adjusts the blend of stocks, bonds and cash based on the age of the child the fund is meant for, making the investments more conservative as college approaches. Savers can further specify if they want an aggressive, moderate or conservative age-based portfolio.
• For those who want to take a more hands-on approach, there are 17 remaining choices. All funds carry some risk, and only the low-yielding Bank Deposit fund is federally insured against losses.