Most of the time when people set their beneficiaries on things like 401(k)s, IRAs, life insurance policies, and brokerage accounts they name their spouse as “primary” (assuming they have one), and their kids as “contingent.” We’ve been told this eases the burden on our family, so they can avoid probate when we pass - a noble goal! Unfortunately, if your children are under eighteen, this well-intentioned plan can lead to unintended complexities – even if you have a will.
In New York State, minors cannot inherit property directly – and whenever a minor becomes a beneficiary under one of the above-listed scenarios, or if a parent dies without a will, a complicated series of proceedings follows. This can happen even if you have a will because beneficiary designations supersede anything written in a will.
So what DOES happen if a minor is a beneficiary?
Initially, a Guardian of the Property of a Minor has to be appointed by the county’s Surrogate’s Court. Once that happens, the Guardian can petition to administer the estate of the deceased parent on behalf of the minor. It’s a horrible series of bureaucratic administrative tasks, each more complex than the last. Trust me when I tell you that you wait a very long time for the courts to do things, you fill out a lot of paperwork, you are highly restricted in the uses of the property, and in the end your kids get unrestricted access to a lot of money at 18 years-old.
So what’s the alternative?
The obvious answer here is estate planning. Anyone with minor children needs to get a will and/or trust. I’ve heard a lot of reasons from people as to why they don’t have them. I get it - life is complicated - but there is probably nothing in your life more worthy of your time, attention, and money.
More specifically, some form of estate planning document like a will and/or trust is necessary. That document designs a structure for how your kids will receive their inheritance, typically in the form of a trust for their benefit. You get to decide at what ages and in what amounts their inheritance would be paid out. Once that document is completed and executed, you then want to make sure that you change the beneficiaries on all accounts - leaving those funds to the trust you created, not your kids individually, so the terms of the trust govern. That way, if you die when your kids are still young, those accounts will flow into that trust, and you’ll help protect your kids from the kind of self-destructive decision making that can come from having too much money too early in life.
For more information about inheritance, beneficiaries, and avoiding probate, please send us a message.