Close Menu
Better Understand the Law

Naming Minors as Beneficiaries Can Lead to Problems

We know how it happens, grandparents want to honor their grandchildren; parents get divorced and name their children as beneficiaries; and single parents want to provide for their children. It’s natural to want to provide for and honor loved ones, especially beloved children.

However, we urge you to consult with a qualified estate planning attorney for good advice on providing for children and to avoid naming minors as beneficiaries.

Why shouldn’t I name my children as my beneficiary? Because, legally, minors can’t inherit property or own property — and trying to do so creates a costly mess.

The Court Steps in if Minors are Named as Beneficiaries

If you do name a minor as a beneficiary, court intervention is necessary. Anytime there is court intervention, there are both a loss of control and expense.

Because minors can’t own property, the court will name a guardian to manage the property for the benefit of your beneficiary. The “guardian” is not automatically a parent and may not be whom you would want to control the assets.

If a minor is named as a beneficiary, there are ongoing court fees and legal fees necessary to both petition the court to have someone named as guardian of the assets and report back to the court until the beneficiary attains the age of 18.

If the inheritance is sizeable, there may be a contest over who is named to control the assets. This will increase fees and likely wreak havoc in your family.

Melanie’s grandfather named her as the beneficiary of his $500,000 annuity. At his death, Melanie was just 14 years of age and the financial company that held the annuity would not release the funds to Melanie’s father, Randy, without a court order.

Melanie’s mother, Lisa, got wind of the inheritance and petitioned the court to be named guardian for the purposes of managing the inheritance. Lisa’s argument was that she had sole custody and knew what was best for Melanie.

Randy also petitioned the court to be named as guardian. His argument was that the money came from his father and that he would act in the best interests of Melanie.

A battle ensued and all kinds of disagreements from Randy and Lisa’s divorce surfaced. Both had to pay thousands of dollars to lawyers.

The judge decided to name a local attorney as guardian of the assets for the benefit of Melanie for the next 4 years. At age 18, Melanie would inherit any remaining assets outright.

A trust named as beneficiary would have avoided the explosion of conflict between Melanie’s parents, eliminated fees and costs, and avoided an 18 year old receiving half a million dollars, with no guidance and no control.

Alternatives to Naming Minors as Beneficiaries

For a small inheritance, consider naming a trusted loved one such as a parent of the minor to receive the inheritance.

Gramps wanted to honor each grandchild with a $10,000 gift. The amount was too small for a trust, so he detailed the gift in his own trust but instructed that the assets were to go to his children, the parent of each child, to be used as instructed.

All went smoothly when Gramps died. His daughters accepted the monies on behalf of their own children. The oldest grandchild received the $10,000 outright to use a down payment on a house and the other $10,000 gifts were placed into 529 plans for each of the other grandchildren.

For a sizeable inheritance, consider making provisions for beneficiary trusts in your own revocable living trust.

Henry provided that the residue of his estate be divided equally among individual trusts shares for the benefit of his daughters, Gracie and Jillian. When he died, the lifetime trust shares were set up for each daughter with a trustee managing and distributing assets as instructed until each beneficiary attained the age of 25 and was eligible to become a co-trustee.

In both cases, all was kept private and there was no interaction with the court.

Benefits of Receiving an Inheritance in Trust

Receiving an inheritance in trust is the absolutely best way to inherit.

  • There is no court interference even if the trust beneficiary is a minor because a trustee, who legally holds title to trust assets, is named.
  • All trust matters are completely private and predators can’t figure out who got what by going to the courthouse.
  • So long as the beneficiary is not the sole trustee of the trust, his or her creditors such as a divorcing spouse, bankruptcy creditor, car accident plaintiff, slip and fall plaintiff, or malpractice claimant have no access to those assets.
  • Assets held in trust or through a contract avoid probate.
  • If the beneficiary suffers from drug, alcohol, or gambling addictions, trust assets can be used to help your beneficiary, but not contribute to the problem.
  • If you wish, you can include personal instructions as to how you’d like the assets to be used.

16 year old Jenelle dropped her cell phone and took her eyes off the road just for a moment to retrieve it. When she did, she plowed into a school bus full of school children. Serious injuries occurred and lawsuits ensued.

Jenelle only had $300,000 in car insurance. The jury awarded a $1.5 million verdict in favor of the families of the injured children.

While Jenelle’s personal assets can be taken, the trust assets she inherited from her parents could not.

The trust held $1 million and was completely protected in the lawsuit.

Aren’t Trusts Subject to the Dreaded Compressed Tax Rate?


However, the compressed tax rate can be avoided totally in 2 easy ways.

  • Invest for growth, not income. No income, means no income tax.
  • Your trustee can, at his or her discretion, have any income distributed pursuant to trust instructions. The income will then be taxed to the beneficiary at his or her tax rate which is likely lower than the trust tax rate.

Suzy was a trust beneficiary. Her trustee met with a financial advisor and CPA and they decided to invest in income producing assets only to the extent that income was needed to meet Suzy’s needs.

Where to Get Help Including Minors in Your Estate Plan

In no way are we suggesting that you should disinherit those children you love. In fact, quite the opposite, we encourage you to honor and provide for your beloved children through comprehensive trust planning or through small gifts directed to adults who love them.

Be sure to consult with a qualified estate planning attorney to make sure your beneficiaries designations and your will and or trust are set up to work, meaning that your estate plan does what you want it to do.

You can find an estate planning lawyer by getting a referral from a friend, asking the bar association for a list of lawyers, or using our free and private website, If you contact an estate planning lawyer through our site, you’re welcome to receive a free case evaluation. But, first, be sure to jot down all of your questions and concerns abut naming a minor as a beneficiary in your estate plan.

Facebook Twitter LinkedIn