Why Minor Children Should Not be Your Financial Beneficiary

Estate planning entails a number of difficult decisions, but for many with minor children, choosing a beneficiary is an easy choice. Parents rightfully want to protect their children from financial hardships by leaving them financial assets upon their death. While it makes sense that many parents want to leave their finances to their children upon death, listing a minor child as a direct beneficiary on a financial account is not a good idea.

What Happens When a Minor is a Beneficiary

If a minor child is listed as a beneficiary and the parent dies, the money will not go directly to that child. Instead, the money will be in the hands of another adult to manage the child’s funds (this person will be court-appointed if not pre-identified by the deceased). Even if the other parent is still alive, they will have to go through court to access the funds. The child would not have direct access to the funds until they reach the age of 18, and some parents may not be comfortable with an 18-year-old receiving year’s worth of money at once.

Appointing a Custodian

Appointing someone to manage the funds for the child until they are of age is still a viable option. However, this person would still need permission granted by the court each time they want to use the money, even if the guardian is the other parent, and prove that the money will be spent on the child’s needs. If this is the chosen route, it is crucial to choose a trustworthy person with the child’s best interests in mind and to ensure they will not use the money for their own personal gain.

Other Options

To get around the process of going through court and identifying a guardian to handle the funds, it is common practice to list a trust as a beneficiary in lieu of naming the child directly.  This way, the child may receive the money on the parent’s terms and it can be managed by a trustee outside of the court system.

It is common to prioritize minor children when estate planning, but it is more beneficial for them to not be listed as a financial beneficiary. With the other options available, it is still possible to give a child financial security upon the loss of a parent without (or with minimal) obstacles to obtaining the full use of those funds.