Retirement Accounts: Naming a Minor as Beneficiary

Substantial retirement accounts are left to minors every day, either by their parents, grandparents, aunts, uncles or mentors. It is not uncommon for an adult to name a minor as beneficiary of their retirement account so that they will have enough money for college, a first car, or a down payment on a first home.

Unfortunately, however, the law can be difficult when it comes to naming a minor as beneficiary of a retirement account. Because minor children cannot be given large sums of money, their parents typically have to go to court to ask for custody over the account, which they will manage until the minor has reached his or her eighteenth birthday.

Realistically, most people believe that, by the time they pass away, the minor child that they have named as beneficiary of their retirement account will have grown up, and will then be free to manage the money as they wish. However, we cannot forsee the future, and it is always best to plan for every eventuality.

In order to ensure that your retirement account funds will be handled as the minor would wish, it is best to name an adult as custodian of the account until the minor has reached adulthood. This is simply a matter of filling out a form and informing the adult of your decision. The only problem surfaces when you do not trust the minor’s parents to serve as custodian of your retirement account, and you need to find another adult to take their place.

Often, individuals use the executors of their wills as custodians over a retirement account until the minor beneficiary comes of age. This is one of the safest ways because you trust your executor to handle all of your other affairs. He or she can allow the minor beneficiary to use the money in small doses until their eighteenth birthday comes around, or can place the funds into an interest-collecting savings account so that the money will grow in the interim.

It is always best, however, that the parents of the minor beneficiary know of your plans, regardless of whether or not they will be named as custodian. There have been plenty of wars in court over such issues, especially if your retirement account holds significant amounts of money. As soon as you fill out the paperwork naming a minor as beneficiary of your retirement account, inform all necessary parties and make sure that everything has been squared away.

You can also add further instructions regarding your retirement account if you so desire. For example, in some states, you can specify whether the minor receives the retirement account funds on his or her eighteenth birthday, or you can stretch it to their twenty-first birthday. Similarly, in some states, you can specify that the funds be used initially for college and for living expenses. This ensures that your retirement account funds are used as you would have liked, and that the minor child for whom you have left that money will be taken care of.

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