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Naming a minor as beneficiary can be a major mistake
By Betty Schaefer on February 28, 2017 at 1:24 PM

Image of father and soon holding piggy bankIn most states, including Missouri and Illinois, 18 is the legal age of majority. At that age, a person becomes an adult in the eyes of the law and gains all of the rights that go along with adulthood. Any person under 18 is a minor and, generally, does not have the legal capacity (or right) to control or manage his or her assets, including an inheritance.

On occasion, a minor child ends up as the beneficiary of a family’s wealth. Sometimes this happens because a minor’s parent dies unexpectedly without a will or trust. Direct inheritance by a minor under these circumstances is unavoidable. Other times, however, the minor is designated by a well-meaning family member as a beneficiary of a life insurance policy or a retirement account. This, unfortunately, can create a major problem for the minor.

By law, a minor cannot take control of inherited assets that are left directly to the minor. An individual adult or, possibly, a financial institution (in Missouri, a “conservator;” in Illinois, a “guardian of the estate”) must be appointed by a probate court to manage the minor’s estate until the minor reaches age 18. This type of probate estate can be expensive and time-consuming, as the minor’s estate will be supervised by the probate court. Court supervision requires the ongoing involvement of an attorney to file detailed, annual accountings on behalf of the conservator. These are scrutinized by the court to ensure proper management of the assets, particularly with respect to investments and expenditures.

Nearly all expenditures from the minor’s funds require court authorization, which is often difficult to obtain, as the objective of most courts is to preserve and protect the minor’s assets until the age of majority is reached. Despite such an objective, however, ongoing administration of a minor’s estate, particularly of a very young minor, can result in significant expenses and fees, which are properly paid from the minor’s assets. Years of administrative expenses can reduce the minor’s inheritance over the long term. Finally, when the minor reaches age 18, all of the assets of the estate will be distributed at once directly to the minor, now adult, to be managed (or more likely spent) as he or she pleases. This result, in particular, is one most families would prefer to avoid.

If you would like to discuss how to structure your estate plan, including your beneficiary designations for life insurance and retirement accounts, to ensure the minors in your family do not inherit a major headache, contact our Trusts & Estates group.

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