The Dangers of Designating a Minor as a Beneficiary

Why You Should Avoid This Common Pitfall

November 2, 2018

Most adults have at least one account, investment, or other financial instrument that has a beneficiary designation. Common examples are: bank accounts, retirement accounts, and insurance policies.

On the surface, this type of estate planning may seem simple–all you have to do is fill in the blank with a person or entity’s name.

Perhaps due to the outward simplicity of beneficiary designations, many people fail to avoid a common pitfall: they designate a minor or person who is not legally competent as their beneficiary.

This is problematic for several reasons:

  • First, the proceeds from the account or policy cannot legally be paid to a minor or incompetent person. So your executor (if you have a will) or administrator (if you don’t have a will) will have to go through the process of having a conservator appointed by the court to accept and manage the money on behalf of your child.
  • Second, the process of securing a court-appointed conservator is often costly and time-consuming. The fees associated with pursuing such an arrangement will be taken out of your estate, thereby reducing the inheritance for your other beneficiaries or heirs
  • Third, the court-appointed conservator may not be the person that you would have chosen. In particular, they may not provide the guidance or training that your child will need to manage his money responsibly when the conservatorship ends.
  • Finally, your child will receive full, unrestricted access to the funds immediately upon turning 18. Because the child is not likely to have experience or training in prudent money management, he or she is likely to indulge in excessive and wasteful spending, and be a target for predators and creditors looking to exploit his or her financial inexperience.

Naming your child as beneficiary of a trust that will receive the proceeds of your life insurance policy or financial account is far superior to naming them as the direct beneficiary of these assets:

  • You choose the friend, relative or trusted advisor who will serve as trustee and manage the funds for your child;
  • You establish a timetable for periodic payouts to your child, that is age-appropriate, tailored to their individual personality and character traits and that allows them to develop money management skills and experience; and
  • You protect your child’s inheritance, because while the funds are in trust they are not available to his or her creditors or others seeking to take advantage of your child.


For assistance with your trust-centered estate planning, please contact us at 678-319-0100.

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