We’ve written extensively about beneficiaries in previous blogs, and for very good reason. Wealth building through investments is only part of the issue. The other part is your passing. Specifically, naming a beneficiary helps ensure your wealth is successfully transferred without legal wrangling over your estate.
Let’s say that you want to transfer that wealth to one of your children, or a favorite cousin, niece, or nephew. Let’s also say that this particular beneficiary is a minor. Can that minor be a beneficiary? Yes, but. The “but” is that you could name a minor as your beneficiary. But it’s not recommended.
Defining the Beneficiary
Before continuing, here’s a brief review about the role of a beneficiary. A beneficiary is defined as any person is designated to receive distributions from a trust, will, or life insurance policy. Beneficiaries also can receive distributions from investments, such as retirement accounts, pensions, or securities. In its most basic form, a beneficiary is an individual designated to receive something of value left to them by someone else.
Defining the Minor
A minor is an individual who is less than the “age of majority,” in other words, when a child legally becomes an adult. And here’s where it starts to get tricky, as the “age of majority” varies by state. In most states, 18 years is considered the age of majority. But in Alabama and Nebraska, the age of majority is 19. And in Mississippi, a minor isn’t legally recognized as an adult until he’s 21 years old.
In other words, if your child (and beneficiary) is 18 years old, she’d be legally recognized as an adult in the state of Georgia. But next door, in Alabama, she’d still be a minor. And moving further east, to Mississippi, she’d still have three years to go before legal recognition as an adult.
Age of majority is one issue to consider when designating your minor as a beneficiary. The other is that your under-legal-age beneficiary won’t automatically receive the largess from your pension fund, life insurance policy, or real estate when you pass on. This is because the minor can’t legally own property—or receive disbursements from a life insurance policy—until they reach the above-mentioned age of majority.
What happens to a minor’s inheritance in this issue? Once again, it depends on the law of the state in which the minor lives, as well as the bequest’s value. Without a designated trusted adult to work through the process and hold the assets until the minor beneficiary reaches the age of majority, the issue could end up in a place you don’t want it to—probate court.
Under-Age Beneficiary Options
Though minors are not able to inherit large amounts of money or assets from you once you pass, there are options available to ensure your under-age child or other family member receives something from your estate. These include the following:
Naming a trusted adult to act on behalf of the minor. Through the adult, the minor has access to your accounts and assets without a probate court requirement.
Creating a trust. This allows you to leave money to your minor, keeping it safe until the beneficiary reaches the age you stipulate. It also means your beneficiary might not have access to the funds until reaching that age.
Putting a UGMA or UTMA in place. The Uniform Gift to Minors Act and Uniform Transfers to Minors Act allows you to leave various assets to your minor beneficiary, which are overseen by a trusted adult. The trust is terminated when the child reaches the age of majority.
You’ve probably realized by now that naming an under-age individual as a beneficiary to your assets is doable, but probably not the best idea. If you want to leave your assets behind to a child or other individual under the age of majority, discuss options with your attorney or financial planner. Doing so can help protect your wealth and ensure your loved ones are cared for when you’re no longer around.