by Kristen Ishihara and Chris Parker with Ishihara & Parker Law Firm PLLC

When it comes to estate planning, most of us just want to make sure our loved ones are taken care of. A common mistake, however, is naming a minor as a beneficiary on financial accounts, life insurance policies, or retirement funds. It seems like a simple way to leave something behind for them—but trust us, it’s a decision that can lead to unnecessary legal headaches, court involvement, and unexpected costs.

What Happens When You Name an Adult Beneficiary?

Let’s start with the easy scenario: You have a life insurance policy worth $110,000 and you name your two adult children as equal beneficiaries. When you pass away, here’s what happens:

1. Your children contact the life insurance company and notify them of your passing.
2. They provide a death certificate (usually a certified copy).
3. The company sends each child a claim packet to fill out and submit.
4. Once everything is processed, each adult child receives a check for $55,000.

Simple, right? No court involvement, no unnecessary legal fees—just a straightforward process. But what happens if one or both of your named beneficiaries is a minor?

The Problem with Naming Minors as Beneficiaries

Unlike adults, minors can’t legally own property, sign for money, or manage large financial assets. That means the insurance company (or financial institution) won’t be able to cut them a check directly. Instead, the situation gets a lot more complicated:

1. The funds can’t be released until a legal guardian is appointed.
2. A court-supervised guardianship must be established, which costs time and money.
3. An attorney is appointed to oversee the case, adding even more legal expenses.
4. The funds are held under court supervision until the child turns 18.
5. At 18, the entire sum is handed over to the child—whether they’re ready for it or not.

Now, let’s be honest: How many 18-year-olds do you know who would make wise financial decisions with a sudden windfall? A lot of young adults would blow through that money quickly, and once it's gone, there’s no getting it back.

The Right Way to Plan for a Minor Beneficiary

The solution is simple: Never name a minor directly as a beneficiary. Instead, use a trust to hold the money for them until they reach an appropriate age. Here’s how it works:

1. Create a Trust in Your Estate Plan – Whether through a will or a revocable living trust, this ensures the funds are handled properly.
2. Appoint a Trustee – This could be a trusted family member, a friend, or even a professional trustee from a financial institution.
3. Set Age-Based Distribution Rules – Instead of an 18-year-old getting a lump sum, you can structure it so they receive portions at ages 25, 30, and beyond.
4. Make Sure Beneficiary Designations Match Your Estate Plan – Even if you have a trust, listing a minor as a direct beneficiary on an account overrides your carefully planned will or trust. The money will go directly to them (and straight into the court process we’re trying to avoid).

Common Concerns About Trusts

A lot of people hesitate to set up a trust because they’re unsure who to name as a trustee. Here’s the good news: You have options. You can name a responsible family member, a close friend, or a professional trustee from a bank or financial institution. Many people choose to list a trusted person first and a financial institution as a backup.

Being a trustee isn’t overly complicated—it’s just about managing the money responsibly and ensuring the child’s needs are met until they reach the age you’ve designated for full access.

Final Thoughts

Estate planning is about protecting the people you love. Naming a minor as a direct beneficiary might seem like an easy way to leave them something, but it can cause a lot of unnecessary problems. By planning properly—setting up a trust and appointing the right trustee—you can make sure your legacy benefits them the way you intended, without the delays, costs, and risks of court intervention.

If you haven’t updated your beneficiary designations recently, now’s the time to do it. Avoid the mistake of naming minors directly and set up a plan that truly works for your family’s future.

Need help setting up your estate plan the right way? Talk to a professional to ensure your loved ones are protected and your assets are distributed smoothly.

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