As top estate planning lawyers in Florida, we’ve seen the consequences of failing to plan for the future. Luckily, securing your legacy is easy. Contact our firm online to schedule a consultation.
Most people think that the best way to protect their family’s future is by working hard and saving money. Although wealth accumulation is undeniably important, it’s not that simple.
When you pass away, your assets may be subject to penalties, taxes and more. They may not automatically pass to your children, especially if they’re minors. To truly ensure your loved ones get the inheritance they deserve, you need a solid estate plan.
As a premier estate planning firm in Florida, we get a lot of questions from prospective clients. One of the most frequently asked is, “What will happen to my assets if I pass away when my children are still minors?” The answer is simple: It depends on how you organized your estate.
At Medley Law Firm, we specialize in finding the best legal solutions to our clients’ unique financial situations. If you have minor children, it’s critical that you think about what might happen to them in the event of your untimely death.
Leaving a minor as a beneficiary has some risks and dangers, alternative strategies should be put into place which is why estate planning should be at the top of your to-do list.
Everyone deserves to have peace of mind about the future. Fortunately, our estate planning lawyers may be able to help you find it. Give us a call at (850) 607-7890 to schedule a case evaluation today.
What Is a Minor Beneficiary?
In simplest terms, a beneficiary is someone who receives or benefits from something. In the world of estate planning, your beneficiary is someone who receives assets after you pass away. A minor beneficiary is an intended recipient of assets who is under the age of 18.
It’s not uncommon for people to want to leave their estate to their children or grandchildren. They may assume that these family members will be adults by the time they pass away, or maybe they’re just unfamiliar with the dangers of naming a minor beneficiary. Either way, people who name minor beneficiaries may be inadvertently putting their inheritance in jeopardy.
Consequences of Naming a Minor Beneficiary
Suppose you and your spouse have a young child that you want to inherit your estate after you both pass, so you name them as your beneficiary. In a scenario in which you live long enough to see them turn into an adult, naming them isn’t a problem. However, life is full of surprises.
Imagine you and your spouse unexpectedly die in an accident while your child is still a minor. In addition to dealing with the tragedy of your untimely deaths, your heir will likely be met with restrictions that make accessing their inheritance difficult. The specific consequences will depend upon the items of which you’ve listed them as beneficiary.
1- Life Insurance Policy
Most life insurance policies can’t authorize payouts directly to a minor beneficiary. If your policy lists a minor beneficiary at the time of your death, the matter will go to probate court, and the payout will be delayed until a court-appointed custodian is brought in to oversee the funds. In addition to not paying your child right away, this process has the potential to be long and costly.
2- IRA Account
Similar to life insurance policies, Individual Retirement Accounts (IRAs) won’t directly distribute funds to a minor beneficiary. According to the SECURE Act, children of the IRA account owner can’t withdraw any money until they turn 18, after which they have 10 years to empty the IRA account completely.
3- Assets of Substantial Value
If a minor beneficiary inherits a significant amount of money or property, they won’t be able to take ownership of it. Like a life insurance payout, these assets will stay in probate court until someone is appointed to manage them on the minor’s behalf. Again, this process can be lengthy and expensive.
In addition to being unable to use assets right away, minor beneficiaries face another problem. As soon as they turn 18, they’ll receive all the funds they were unable to have as a minor in a lump sum. Although that may not sound like an issue at first, can you imagine having an inheritance dumped in your lap on your 18th birthday? It’s not exactly a recipe for responsible financial planning.
Ways to Protect Minor Beneficiaries
Although estate planning with children, especially young children, requires a few extra considerations, it’s not impossible. An experienced estate planning attorney can suggest that you implement a combination of strategies, including the following:
- Naming a personal guardian in your last will and testament. If there are two parents, both should name the other in their own will. However, it’s important that both people also select someone to be their child’s guardian in the event both parents pass away. It’s best if spouses name the same guardian and backups.
- Creating a trust to hold the child’s funds. One option is to order the creation of a testamentary trust in your will that will be created after your passing. You will also need to name a trustee to manage the funds on behalf of your child; this person may be the same as their legal guardian but doesn’t have to be. You can also include a provision that directs your trustee to release funds in a staggered manner when your child turns 18. Doing so will prevent them from receiving a lump sum on their 18th birthday.
- Establish a Common Pot Trust for multiple beneficiaries. This type of trust holds funds for all the beneficiaries, and rather than dividing everything equally between them, it allows the trustee to release money based on individual needs.
These are just a few of the tools you can use to protect your family’s future. When it comes to estate planning, there is no one-size-fits-all solution. However, an experienced lawyer can help design the ideal plan for your situation.
Medley Law Firm: Top Estate Planning Attorneys in Florida
We understand that estate planning can be difficult, especially if you’re new to the idea. Here’s the bottom line—you should not name a minor beneficiary. Doing so gives you little control over how your estate is processed and divided, and leaves the decision of your child’s guardian up to the state.
Instead, consider reaching out to an experienced estate planning attorney for more viable options. The inheritance laws experts at Medley Law Firm would love to speak with you! Reach out to us online to schedule a case evaluation, or give us a call at (850) 607-7890.