Law FAQ: Why can’t I name my minor kids or grandkids as beneficiaries?

You can certainly leave assets to your children and grandchildren if you do so correctly, and there are a number of options to choose from when planning for minor beneficiaries. The problem comes in when minor beneficiaries are not properly planned for, which usually occurs when a minor is named as a beneficiary on a beneficiary designation form (e.g. life insurance beneficiary or retirement account beneficiary) or outright in a will or trust (e.g. $15,000 to each of my grandchildren).

Why? Minors cannot legally hold property in their own name. An adult (custodian, trustee or guardian) must hold the assets for the minor’s benefit until the child reaches a certain age. In Tennessee, the legal age at which they can receive or own property directly is eighteen (18). In your estate plan, you can change the age at which you want them to receive the funds, but the minimum is eighteen. When a minor is named as a beneficiary or left an outright distribution in a will or trust, someone has to petition the court to be appointed guardian of the child’s property. Even if a natural parent and legal guardian is involved, the parent would have to seek to be appointed and subject to the court’s supervision in the management and expenditure of any funds. Custody and legal guardianship of the person of the child are not alone sufficient to handle the child’s funds absent a guardianship. I have been involved in many cases where a child’s natural parent has to be appointed as guardian and subject to the court’s ongoing supervision regarding their child’s funds because the other parent is deceased and the child was the beneficiary on the life insurance.

In some cases, the funds can be deposited with the court clerk, and the child can petition the court to release the funds when he or she reaches the age of 18. In other cases, an ongoing guardianship is required, which involves court approval for expenditures, annual accountings and sometimes a great deal of time and expense.

What should you do? I will talk more about some of the options for leaving funds to your beneficiaries in the coming weeks.  But for now, make sure you do not have your minor beneficiaries named on any beneficiary designation form.  If you would like to learn more about the options for your beneficiaries, please contact our office.