Not All Of Your Assets Pass in Probate. Keep Beneficiaries Updated.
Most people want to pass their assets to their children or grandchildren, so should you name a minor as your beneficiary? No. 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.
Large Sums of Money Cannot be Left 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.
There are No Guarantees the Money Will be Used Wisely
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 age 18 or 21, depending 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 child may have other ideas.
Create a Trust
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 or 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.
To create a trust, consult with your estate planning attorney, Joseph L. Motta. We'll make sure that your beneficiary designations align with your estate plan and are as beneficial to your intended heirs as possible.
Avon Lake, Ohio Elder Law Attorney
At Joseph L. Motta Co., a local estate planning firm in Avon Lake, OH, we help our clients to leave a legacy, not a predicament. Let us help you review beneficiary designations and your estate planning documents to see if they are set up to maximize benefits to your intended heirs or if they could use updating. Please call our office at 440-930-2826 to schedule a free consultation .