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Big Mistake: Naming A Minor the Outright Beneficiary – Of Anything!

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Big Mistake: Naming A Minor the Beneficiary – Of Anything

By Phil Rarick, Miami Trust Attorney

Naming a minor child the outright beneficiary of a will, life insurance policy, IRA, 401K, UGMA (Uniform Gift to Minor Account) or any other source of funds is almost always a mistake for four reasons:

1. If the funds are over $15,000 a guardian ad litum may need to be appointed by the court for the minor to access the funds. If the funds are over $50,000, such a guardian must be appointed. See F.S. 744.3025 and 744.387. Court costs to petition the court and secure such funds on behalf of the minor could easily run from $3,000 to $5,000 or much more.

2. Upon reaching the age of 18 the minor can immediately claim all funds. Therefore, if the goal was to set aside the funds for the minor’s education then these funds are likely lost. How many 18 year adults have the money management skills to handle any significant sum of moneys? You may think your child is the exception, but do you really want to take this risk?

3. After age 18, the funds can be attacked by creditors of the minor.

4. If distributed at age 18, the funds will be considered as available funds for any financing the adult child seeks for college or university entrance.

Take Away Points

1.    Prepare a protective educational or safe harbor trust as part of your living trust and appoint a person you trust to act as a trustee for any monies you intend to go to your minor children or grandchildren. Consult a Miami trust attorney experienced in preparing such plans.

2.    Do not name minors a contingent beneficiaries of life insurance. We see clients often get poor advice from life insurance agents on this point. For married couples, it is popular to name the other spouse as primary beneficiary and children as contingent beneficiaries. If the spouse does not survive, and the funds go to the minor children, you have all the four problems mentioned above.

3.    Do not use UGMA accounts – except for small sums under $1,000. These accounts are overused. The beneficiary of an UGMA (Uniform Gift to Minor Account) can receive the entire sum at age 21.

For more information about protecting funds for your minor children, contact attorney Phil Rarick with Rarick & Beskin at (305) 556-5209 or info@raricklaw.com. As a Miami trust attorney with over 20 years of experience we welcome the opportunity to meet with you and discuss your legal options.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

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