The law considers minors too young to control their own money. If a minor inherits money, the law requires that a court appoint a conservator to manage the money and ensure the money is used for the minor’s benefit. This presents significant added expense (hiring an attorney and accountant, court fees, bond fees to insure the minor’s assets, etc.), difficulty (yearly accounting for every penny to the court), and complication. And the minor will gain full control of their inheritance or life insurance proceeds at age 18. Unfortunately, knowing they will control their inheritance at 18 can be very problematic for teenagers and those around them, as estate planning attorney Martha J. Hartney shares in her cousin’s story.

This can be potentially problematic if you are divorced but purchase life insurance for the benefit of your minor child. Upon your death, guess who is likely to become the conservator and acquire control over the inheritance until the child reaches age of majority? Your ex-spouse. However, with good planning, upon your death you can arrange for your life insurance to pour into a trust you create for your minor child’s benefit. You can decide who should manage and control the life insurance proceeds. And you can also arrange to avoid giving your child full control at age 18.

Many choose to list their minor children as either the primary or (more often) contingent beneficiary on their IRA or 401K account. If your minor child inherits the IRA, the minor will need a conservator and the minor will gain full control over all the funds at age 18.

(Click here to read about the problem with giving your beneficiary full control over their inheritance once they reach 18.)

Click here to return to Protecting Your Family