Bank accounts, life insurance policies, IRAs, 401(k)s, and other similar assets often include a pay-on-death option, allowing account holders to name beneficiaries who will immediately gain ownership of the account upon the holder’s death. This efficient process bypasses probate, making it a popular option for estate planning.
However, while it may seem natural to name family members as pay-on-death beneficiaries, you should never be adding minors to bank accounts as beneficiaries. Minors cannot legally manage assets until they reach the age of 18, which can lead to frozen accounts and legal complications. Financial institutions often require a court-appointed conservator to manage the funds on the minor’s behalf, adding unnecessary delays, costs, and stress for your loved ones.
To avoid these issues, it’s essential to explore proper planning strategies, such as setting up a trust to ensure the assets are managed responsibly until the minor is ready to inherit. For more guidance on structuring your estate and avoiding these common pitfalls, consider our Estate Planning services in Minnesota. With careful planning, you can ensure your assets are distributed as intended without unnecessary legal hurdles or complications.
Why You Shouldn’t Name Minors as Pay on Death Beneficiaries
Minors are not legally permitted to enter into contractual agreements until they reach the legal age of 18. As a result, naming a minor as a pay-on-death beneficiary can create significant complications. Financial institutions may freeze the assets, leading to delays and legal challenges as guardians or conservators are appointed to manage the funds. This often results in confusion and unnecessary disputes over who has ownership or control of the assets.
To avoid these issues and ensure your assets are handled properly, it’s important to consider alternative planning strategies.
A Minor Won’t Be Able to Access the Contract Until They Turn 18
Because minors cannot legally sign contracts, any money in accounts placed under their name cannot be accessed until they turn 18. This means that everything will be put on hold until they reach the legal age, which can create significant delays and complications. Banks and other financial institutions often find these situations challenging to navigate, leading to unnecessary frustration for all parties involved.
Deciding the appropriate age for your children to receive their inheritance is an important aspect of estate planning. Learn more about what age your kids should be when they receive their inheritance to ensure their financial future is handled responsibly.
The Need to Open Up a Conservatorship
If money owned by a minor is needed to cover expenses such as education or daily needs, a conservatorship must be established. This involves the court appointing a guardian to manage the minor’s financial matters. However, opening a conservatorship requires a court hearing, which can be lengthy, complex, and expensive.
Even if the minor has a surviving parent, it’s not sufficient for that parent to simply be named the legal guardian. The surviving parent must still petition the court for the authority to access the funds under the child’s name.
If you’re considering whether a conservatorship is necessary or how to obtain one, learn more by visiting our page: Do You Need a Conservatorship? How to Get One If You Do. Taking the right steps now can help avoid unnecessary complications and ensure the minor’s financial needs are properly addressed.
To better understand how guardianship and conservatorship can protect a young beneficiary’s future, visit our page on Guardianship and Conservatorship. Proper planning ensures that your loved one’s inheritance is preserved and used in ways that truly benefit them in the long term.
Concerns on the Child’s Responsibility
Although the age of 18 is considered legal age, there can still be doubts about the level of maturity of this age group. Inheriting a huge amount of money may not be something they are ready to handle responsibly. That risks money going to waste.
What You Can Do Instead
Because of the issues mentioned above, adding minors to bank accounts is a bad idea. There is also nothing the account holder can do within the contract to remedy these problems or prevent them. A better strategy would be to adopt other estate plans, such as a will or revocable trust.
In a will or revocable trust, a person can name a minor as a beneficiary. To ensure proper distribution and responsible use, one can also create rules or conditions that need to be met before the child gets their inheritance. For example, a person can add a condition that requires the child to reach a certain age before they receive the money. This is a better alternative than listing minors as pay on death beneficiaries where the option of setting conditions is not available.
If you’re a parent of minor children and want to know more about how you can thoughtfully plan for their future, schedule a call with Minneapolis Stone Arch Law Office.
