All parents want to make sure their young children are provided for financially in the event of their death. Grandparents may also wish to leave assets to grandchildren in a will or trust. However, leaving assets outright to minor children is usually not a good idea. Additionally, naming minor children as beneficiaries on life insurance policies or retirement accounts is also troublesome.
If you name a minor child as a beneficiary on a life insurance policy, retirement account or bank account the child has the right to 100% of the proceeds upon their 18th birthday. Equally scary is that the guardian of the child can’t access any of the money while they are raising the child. Some parents have overcome this by naming the guardian as the beneficiary with the agreement that all proceeds will be used for the child. This is not foolproof since technically the guardian has no legal obligation to use the funds for the child. Also, once the funds are transferred to the guardian they become assets of the guardian and can be used to satisfy personal debts of the guardian.
Overcoming these hurdles is simple. Establish a revocable trust and name the trust as the beneficiary for all of the accounts. We still recommend that if you have a spouse you name your spouse first, but as a contingent beneficiary you can name your trust. This way, all the financial institutions will pay out the proceeds to the trust and the trust provisions will dictate when and how the money is used.
Planning for your death is scary when you have minor children. However, the attorneys at Burt + Clerc are here to help you make the best decisions for your family and loved ones.