The Importance of Understanding Beneficiary Designation Forms

If You Have Minor Children Who Are to Benefit, Just Designating Them Isn't Enough!

Beneficiary designation forms are often prepared by the client working alone. But if the client has minor children who are to benefit from any of these assets, it’s important to have a mechanism whereby the minor child’s interest in the asset is protected and available for the minor child’s support. This requires careful planning.

Have you named a minor child as a beneficiary of life insurance, your retirement account or an annuity, even if that child is a contingent beneficiary (meaning #2 or even #3 in line to inherit)? If yes, did you realize that the only way the child (or the child’s guardian) can access that inheritance is to have a “guardian of the property” appointed by the court? This means that a judge will control this inheritance until the beneficiary child reaches the age of majority (18 or 21, depending upon the jurisdiction).

During the time of court supervision of the asset, the guardian must petition the court for authority to access the inheritance! And, as with all court proceedings, the “wheels of justice” move very slowly and expensively. An attorney must be involved to represent the guardian who is obligated to record and report each and every expenditure from the inheritance. And then once the child beneficiary reaches the age of majority, he or she inherits the asset 100%, without any supervision, advice or controls.

Although a Uniform Transfer to Minors Act account can be used in some situations, it’s really best to have your estate planning documents include a provision for what is called a “testamentary trust” for the benefit of a potential minor beneficiary of your life insurance, your retirement account or your annuities.

I am very experienced in working through the issues and the wording for such a testamentary trust and welcome an opportunity to discuss this topic with you. Contact my Bethesda law office for more information. I serve families throughout Maryland, Virginia and the District of Columbia.