Planning how to deal with your estate after you have passed away will involve choosing who your beneficiaries are. Beneficiaries are the individuals or other entities that will receive your assets after you are gone. People will commonly choose their children or grandchildren as beneficiaries to their estate. However, it is important to understand the consequences of choosing a minor as a beneficiary.

Life insurance policy

Usually, minors are not eligible to be direct beneficiaries of most life insurance policies. If you choose a minor as beneficiary for your life insurance policy, he or she will have to go to probate court to claim his or her right to receive the insurance policy payout. Then, an adult will be chosen to manage the money until your minor beneficiary is responsible enough to handle the funds on his or her own.

The best thing to do is to delegate an adult you trust ahead of time. This can help to save significant time and money dealing with probate court.

Individual retirement account

Dealing with minor beneficiaries for an individual retirement account (IRA) is similar to life insurance policies. Minor children are not allowed to directly receive IRA funds as an inheritance. Beneficiaries who are minors need to wait until they reach 18 years of age before they are allowed to take money out of the IRA account, assuming they are the children of the IRA account holder.

Once your minor children turn 18 they will have 10 years to completely withdraw all of the funds in your IRA account that you had left for them. Note that the 10-year rule does not apply to grandchildren or other minors.

Significantly valued assets

Minors are prohibited from inheriting any assets or funds of significant value. This means if you leave significantly valued assets to a minor child he or she will have to request that the probate court set up a conservatorship for the assets you left the child. The conservatorship will have an adult manage the assets or finances you have left to the minor beneficiary.

Avoiding having to name minor as beneficiary

Due to the requirements of navigating the probate court process, you may want to do what you can to avoid having to name a minor as your beneficiary. One way to avoid this is to choose a trusted adult to be the beneficiary instead. This adult can then use the inheritance on behalf of the minor child.

Another option to avoid probate court is to create a trust. You can have the trust hold title to the assets until the minor reaches adult age.

Should I name a minor as a beneficiary?

Whether or not to name a minor child as a beneficiary will ultimately depend on your own wishes for the minor child. There could be many factors to consider, such as the size of your estate and among how many beneficiaries you wish to divide your assets. Obtaining advice from a professional with expertise in personal finance can be a great help.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.