One of the best tools in estate planning is using beneficiary designations for your accounts. In simple terms, a beneficiary designation directs who will receive the funds or assets after you pass away. A beneficiary designation is often made when establishing a financial account, retirement account, or life insurance policy.
Often, people select their spouses or children to be beneficiaries of their accounts. However, a beneficiary designation for a minor child can be a costly mistake. Legal minors cannot receive assets under a beneficiary designation, which can introduce a host of legal issues.
The result of a minor beneficiary is that the account will be processed through probate court and a guardian, trust, or conservatorship will be established by the state to handle the funds. This is a common scenario, especially if the children are listed as secondary beneficiaries after a spouse. The process to do so can be costly, and complicated, and doesn’t guarantee the State of Texas will appoint your preferred guardian to manage the estate.
If you have minor children, it may be helpful to set up either a 1) living trust; or 2) include a contingent testamentary trust in your will. A minor child can be a beneficiary of trust, principally because the funds in the trust will be managed by a trustee. You can establish a trust that will provide for your minor children according to your instructions and choose the trustee who will manage the trust. In addition, you can file a Declaration of Guardian to establish the guardian of your minor children in the event of your death or incapacity.
In any case, having beneficiary designations that select minors can undermine an estate plan. After they reach the age of majority, can legally receive an inheritance, and manage their financial affairs, you can update the beneficiary designations.
This is a common issue and mistake that is often overlooked in estate planning. It’s important to consult with an estate planning attorney for this issue and prevent other oversights. Contact us for an estate planning consult via our contact page or phone number: 469-592-5838.