Expert Insights: The Risks of Naming Minor Children as Death Beneficiaries in Estate Planning

By Callie W. Cowan, Esq.

When considering how to structure your estate plan, one of the most important decisions you will make is determining who will inherit your assets. If you're a grandparent wanting to leave a portion of your estate to a minor grandchild, it's crucial to understand the potential pitfalls associated with naming them as a direct beneficiary. As an estate planning attorney, I've seen firsthand the complications that can arise from this well-intentioned decision.

Legal and Guardianship Complexities

One of the most significant issues is that minors cannot legally inherit property or financial assets outright. If you name a minor as a beneficiary, those assets typically go into a court-supervised guardianship until the child reaches the age of majority—usually 18 or 21, depending on your state. This process often involves considerable court oversight, legal fees, and administrative costs that can significantly reduce the value of the inheritance. Moreover, the court may appoint a guardian to manage the funds, and that person may not be the individual you would have chosen. This can lead to the assets being handled in a manner inconsistent with your wishes.

Financial Inexperience and Its Consequences

Another critical concern is the financial inexperience of the beneficiary. Once the minor reaches adulthood, they gain full control over the inheritance. At 18 or 21, most young adults lack the maturity and financial literacy required to manage a significant sum of money wisely. Without the necessary skills, there is a high risk that the inheritance will be squandered, leaving the beneficiary without the long-term financial security you intended to provide.

Family Disputes and Tension

Naming a minor as a beneficiary can also create tension and conflict within the family. If the terms of the inheritance are not clearly articulated or if there is confusion about how the assets should be managed, it can lead to disputes among family members. This is particularly true if different relatives have differing opinions on how the funds should be used for the child's benefit. Such disputes can be emotionally and financially draining, detracting from the legacy you intended to leave.

Alternative Estate Planning Strategies

Given these potential complications, it is wise to consider alternative strategies that better protect your assets and ensure your wishes are honored. One of the most effective solutions is to establish a trust, either during your lifetime (a living trust) or through your will (a testamentary trust). A trust allows you to appoint a trustee—someone you trust implicitly—to manage the assets according to your instructions. You can specify how the funds should be used, such as for the child’s education, health care, or other needs, and set conditions on when and how the child can access the funds. This approach provides both control and flexibility, ensuring that the assets are managed responsibly until the beneficiary is mature enough to handle them.

In conclusion, while the desire to provide for a minor grandchild is understandable and commendable, naming them as a direct beneficiary in your estate plan can lead to unforeseen challenges. As an experienced estate planning attorney, I strongly recommend exploring alternative options, such as trusts, that offer greater protection and ensure your legacy is preserved according to your wishes. By taking these steps, you can provide for your loved ones in a way that safeguards their future and honors your intentions.