Most people want to pass their assets to their children or grandchildren, but naming a minor as a beneficiary can have unintended consequences. It is important to make a plan that doesn’t involve leaving assets directly to a minor.
There are two main problems with naming a minor as the beneficiary of your estate plan, life insurance policy, or retirement account. The first is that a large sum of money cannot be left directly to a minor. Instead, a court will likely have to appoint a conservator to hold and manage the money. The court proceedings will cost your estate, and the conservator may not be someone you want to oversee your children’s money. Depending on the state, the conservator may have to file annual accountings with the court, generating more costs and fees.
The other problem with naming a minor as a beneficiary is that the minor will be entitled to the funds from the conservator when he or she reaches the age of majority (which depends on state law). There are no limitations on what the money can be used for, so while you may have wanted the money to go toward college or a down payment on a house, the beneficiary may have other ideas.
The way to get around these problems is to create a trust and name the minor as beneficiary of the trust. A trust ensures that the funds are protected by the trustee until a time when it makes sense to distribute them. Trusts are also flexible in terms of how they are drafted. The trust can state any number of specifics on who receives property and when, including allowing you to distribute the funds at a specific age or based on a specific event, such as graduating from college. You can also spread out distributions over time to children and grandchildren.
If you do create a trust, remember to name the trust as beneficiary of any life insurance policies and discuss with your attorney whether you should designate the trust as beneficiary of any retirement plans. If you forget to take that step, the money will be distributed directly to the minor, negating the work of creating the trust.
If you have any questions about or would like to create a trust under your estate plan, give us a call.
Attorney Advertisement. The information contained on this website is not, nor is it intended to constitute, legal advise. The transmission and receipt of information contained on this website, in whole or in part, does not constitute or create an attorney-client relationship between Jayde Law PLLC and any recipient. You should not send us any confidential information in response to this website. Such responses will not create an attorney-client relationship, and any information disclosed will not be privileged or confidential unless we have established an attorney-client relationship and executed a written engagement agreement.