It is natural for clients to want to name their children or grandchildren to receive their assets after their death However, the naming of a beneficiary directly on an account, especially if they are a minor, can derail an otherwise well-thought out estate plan.
Often clients assume that their estate planning is complete once they have signed their Will and Trust. Then either immediately or through various changes in their assets, they name the same persons listed in their estate planning documents as the direct beneficiaries on their accounts. If the designated beneficiary is a minor at the time of the account owner’s death, significant and unintended consequences can, and often do, occur.
- The assets may require the appointment of a conservator by a Court. The process can be costly and time consuming. The person appointed by the Court may not be the same as the person that the client wanted to be in control of the assets. In addition, many jurisdictions will require an inventory and annual accountings to be filed with the Court, even when the conservator is a parent of the minor. And if multiple minors are named on the name account (e.g. 3 minor grandchildren are named as beneficiaries of a life insurance policy), the costs and frustration are multiplied.
- Assets held in a conservatorship then pass directly to the minor once they reach the age of majority in their state (age 21 in Colorado). These assets will then not receive the benefits and protections contemplated in the owner’s estate plan in the form of trustee control and trust distribution standards. For example, a grandparent’s desire to have the funds managed by a trustee and then distributed to the beneficiary at age 35 for the purchase of a new house is now only a wish as the cash was distributed directly to the beneficiary at age 21.
Clients and their financial and legal advisors put a lot of thought, love, and energy into how to structure the way in which the next generation will receive their inheritance. It is crucial for the success of a client’s estate plan that we remind them to not only periodically review the terms of their estate planning documents, but also any beneficiary designations on their accounts. It can make the difference between a smooth transfer of assets in accordance with the client’s wishes, and unexpected legal hurdles to be faced by the family at an already difficult and emotional time. Paralegals working in estate planning are always willing to assist clients in the review of beneficiary designations to ensure they work with, and not against, the client’s estate plan.