Bank accounts, life insurance policies, IRAs, 401ks, and other similar assets offer a pay on death option, which allows the account holder to list pay on death beneficiaries. These allow for straightforward transfers, whereas the people named will immediately gain ownership over the account upon the death of the holder. This transfer happens without the need for probate.
Naturally, people would put their families in contracts as pay on death beneficiaries. However, one must be wary about listing minors in accounts or any form of contract, for that matter.
Why You Shouldn’t Name Minors as Pay on Death Beneficiaries
Minors are not legally authorized to enter into contractual agreements until they reach legal age, which is 18 years old. Naming a minor as a pay on death beneficiary can cause problems with your assets and cause confusion over who has ownership of it.
A Minor Won’t Be Able to Access the Contract Until They Turn 18
Because a minor cannot sign a contract, the money in the accounts now under their name cannot be touched until they turn 18. Everything will be put on hold until they reach legal age, which is something that banks and other financial institutions won’t be happy about.
The Need to Open Up a Conservatorship
If the money now owned by a minor is to be used for expenses of raising them, such as education and other daily needs, a conservatorship needs to be opened where the court will appoint a guardian to handle financial matters for the minor. This requires a court hearing that can be lengthy, problematic, and not to mention costly.
Even if the minor has a surviving parent, it’s not enough for that parent to be named a legal guardian when it comes to monetary concerns. The other parent will still need to petition the court to grant them authority to access the money under the child’s name.
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, it’s not advisable to name minors in bank accounts. 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.