Most people want to pass their assets to their children or grandchildren, but naming a minor as a beneficiary can have unintended consequences. It is important to make a plan that doesn’t involve leaving assets directly to a minor.
There are two main problems with naming a minor as the beneficiary of your estate plan, life insurance policy, or retirement account. The first is that a large sum of money cannot be left directly to a minor. Instead, a court will likely have to appoint a guardian to hold and manage the minor child’s money. The court proceedings will cost your estate, and the guardian may not be someone you want to oversee your children’s money. In Florida, the guardian has to file annual accountings with the court, generating more costs and fees.
The other problem with naming a minor as a beneficiary is that the minor will be entitled to the funds from the guardian when he or she reaches age 18 in the State of Florida. Once the minor reaches the age of majority, there are no limitations on what the money can be used for, so while you may have wanted the money to go toward college or a down payment on a house, the child may have other ideas when they turn 18 years old.
The way to get around these problems is to create a trust and name the minor as beneficiary of the trust. A trust ensures that the funds are protected by the trustee until a time when it makes sense to distribute them. Trusts are also flexible in terms of how they are drafted. The trust can state any number of specifics on who receives property and when, including allowing you to distribute the funds at a specific age or based on a specific event, such as graduating from college. You can also spread out distributions over time to children and grandchildren.