Author Topic: Are you legally liable for adult kids that are dependents on your tax return?  (Read 2013 times)

fa

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I know this is dependent on your state, but consider this scenario.  I have carried umbrella insurance because of my 2 kids.  My youngest is almost 18, so I was thinking of dropping the policy.  An attorney told me that you are no longer legally liable for things your kids do when they turn 18.

A friend of mine has a 19 y/o child who accidentally caused very serious injury to someone. The medical expenses resulting from the accident run into the hundreds of thousands and will probably exceed 1 million.  Not even counting pain and sufffering  (injuries are horrific and it is a miracle the person did not die).  This is not an automobile accident, so the insurance involved is the homeowners insurance.  The parents have no umbrella insurance and their personal injury insurance cap is $350,000.  They are at serious risk for being sued and losing everything they have.  Apparently they are liable because the child is in college and still a dependent for income tax purposes.  I know the issue is for real because they are close to a settlement with the plaintiff.

As an aside, the 19 y/o is a really nice kid.  It was a true accident with no malignant intent.  The kid has no assets to speak of.

Needlsess to say, something like this can completely ruin your FI/RE status.  The parents have a modest income and live very frugally.  I don't know if they know this blog but they certainly qualify as Mustachian.  I was shocked to learn that the actions of your adult children can cause a legal liability for you.  Does anyone have any comments on this?  Maybe some attorneys?  This situation has made me reconsider getting rid of the umbrella policy.

Wile E. Coyote

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Legally liability is not going to turn on whether you claim someone as a dependent on your return. As you suggested, it is likely a matter of state law.

Villanelle

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Was the accident in the parents' home?

GizmoTX

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Ask your insurance company about limits on your umbrella policy.