Don’t Make Bad Beneficiary Designations (Part 3 of 3)

In our third and final part of this series on beneficiary designations we will take a look at the consequences of naming a minor as beneficiary of any asset.

Mistake No. 3 – Naming a minor as beneficiary of any asset

Most people assume that it is best to name a spouse as the primary beneficiary and to name children as contingent beneficiary (so they would receive the asset if the spouse is deceased) when asked to make a beneficiary designation on a life insurance policy, retirement account, or other account. This is fine in some cases. But what if any of the children are minors?

We tell clients never to name a minor as the direct beneficiary of any asset. This act may be well-intentioned, but it can wreak havoc on the estate plan.

What if my named beneficiary is a Minor?

If a named beneficiary is a minor, the property cannot be paid directly to the beneficiary. Instead, someone must petition the court to be appointed as legal guardian for the minor so that the distribution can be made to the guardian instead. From that point forward, the court supervises the guardian’s handling of the minor’s property. All of this involves extra time, trouble, and expense that could have been avoided.

Possibly the most troubling consequence is that the beneficiary’s guardianship ends when the beneficiary turns 18, as opposed to the age selected by the deceased owner in the owner’s will or trust. Whatever property is left in the guardianship is distributed to the beneficiary with no supervision or strings attached. This creates a perfect storm for financial disaster – 18 years old, sudden distribution of property all at one time, no restrictions – which the parent never intended.

Solution: Consider providing for the minor in your will or trust and naming your estate or trust as the beneficiary, rather than naming the minor as a direct beneficiary.

Recommendations for beneficiary designations in Tennessee

There is no single solution for estate planning. Each situation is unique and requires special attention. Consult with an estate planning attorney about your beneficiary designations. Understand the effect of the designations you have made and consider the pros and cons of other options. Then, make a decision about whether changes are needed and take the steps to carry out that decision.

Making a new beneficiary designation can be as simple as completing and submitting a short form. It is just not worth it to ignore this important aspect of your estate plan when you consider the little effort that is required to update your beneficiary designations compared to the potential consequences of not updating them.

Andra Hedrick is an attorney with GSRM. She assists clients in preparing estate plans best suited to carry out their wishes. Andra regularly appears in probate court in contested and uncontested cases involving estates, conservatorships and trusts. If you are seeking legal or other professional advice, we encourage you to reach out directly to us – after you have fully read and understand our disclaimer.  

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