minors and account beneficiaries

Not the Best Idea to List Minors as Account Beneficiaries

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Parents of young children often wonder if it is the best idea to name their minor children as account beneficiaries.  Usually, a parent will list the spouse as the main beneficiary.  As for the contingent beneficiary, parents would like to name their children in the event something happened to both parents.  Unfortunately, this practice of naming minors as account beneficiaries will cause many unintended consequences.  

Do Not List Minor Children as Account Beneficiaries

In the vast majority of states, minors may not inherit money or sign legal documents.  Therefore, when you name a child, the payment may only be made to a court-appointed guardian.  Appointing a guardian takes time and will delay any payments to the children. 

Other Parent is Not Automatic Guardian

Some parents wrongly believe that the other parent would simply serve as “automatic guardian.”  However, the other parent is not the automatic choice because a young child cannot consent to that arrangement. 

Naming Guardian as Account Beneficiary for Minor Children

To avoid some of the issues above, parents will name the actual guardian itself to accept the funds on behalf of the children.  Naming the actual guardian itself will not expedite payments to the child.  Rather, the court must still appoint the guardian.  This is true even with respect to the guardian designation made in the Will.  Also, there are other issues with naming an adult beneficiary on behalf of your child.  Even if this person does receive the funds, there is much incentive there to use the funds inappropriately.  It seems to be a risk not worth taking

UTMA Account as Beneficiary for Minor

An UTMA account actually does allow someone who is not a court-appointed guardian to receive property on behalf of a minor.  While these accounts offer simplicity, they do lack the flexibility, control and asset protection.    Thus, the creation of a trust may still offer more benefits. 

Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!

Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.

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