Why You Shouldn’t Name a Minor Child as Your Beneficiary

Continuing with September as National Life Insurance Awareness month…

One of the main reasons people have life insurance is because they have young kids. Often, people think that they should name their spouse as the primary beneficiary and then the kids as contingents (if something happens to both parents). This blog talks about why this may not be a great idea.

So, what happens if you name your child as a beneficiary, and they inherit as a minor (under age 18)?

When you open any investment or retirement account or have a life insurance policy, you will be asked to provide a beneficiary. A beneficiary is a fancy word for “someone who gets your money when you die.”

If you are married, retirement accounts (like 401(k)s) require you (by law) to name your spouse unless the spouse gives permission for you to name someone else. For example, if are in a second marriage and are both financially stable, you may want to name your kids from an earlier marriage as your primary beneficiary—then your current spouse would have to approve and sign off.

You can then name someone else as a contingent beneficiary, meaning, if something should happen to you and your primary beneficiary, it names someone else who inherits.

My typical joke is, if you are parents, please don’t die together; it makes it very difficult on the children. But seriously, it is important to think about these things if you are parents, even though nobody wants to talk about their death.

If you and your primary beneficiary both pass and your minor child is named as a beneficiary, note the following:

  • Minors cannot inherit money outright, and for good reason.  Nobody wants to give a 7‐year‐old a large bank account. If you name them and they inherit, then a court will appoint a guardian to manage these funds (called a conservator) until your child reaches legal age (typically age 18).
  • The funds then go into a special type of account called a conservatorship.  The court requires an attorney to oversee the annual process (which requires paying attorney fees) to account for needs that must be filed with the court (requiring court costs). Thus, all of this takes time and money.
  • Once your child turns 18 (or 21 in some states) the money is theirs to use as they please.

Ok.  What are my other options?

  1. Name a trusted adult. If you are confident that your parent or sibling will absolutely guarantee that this money is used for the kids, and only the kids, then go ahead and name them.
  2. Consider a trust. If you set up a trust with an attorney, then you can name the trust as your beneficiary, and whatever the trust says goes. So, in the trust, you can name people who will take care of your children and separate people who will manage your money, if you so desire. You can also specify that the money remain tied up in the trust for as long as you want.  For instance, if you want your kids to inherit the money outright when they are 30, that’s something you can do. The trust can also designate what the money is to be used for.

You may want to consult an attorney before enacting any of these changes.


*Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment, investment strategy, or product. (Including the investments and/or investment strategies recommended or undertaken by Stephens Consulting, LLC. Doing business as Stephens Wealth Management Group (SWMG). Or any non-investment related content, made reference to directly or indirectly. In this material will be profitable, equal any corresponding indicated historical performance level(s). Be suitable for your portfolio or individual situation or prove successful.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained in this material serves as the receipt. Of, or as a substitute for, personalized investment advice from Stephens Consulting.
Please remember that if you are a SWMG client, it remains your responsibility to advise us, in writing, if there are any changes in your personal/financial situation or investment objectives. For the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to your individual situation. You are encouraged to consult with the professional advisor of your choosing.

SWMG is neither a law firm nor a certified public accounting firm and no portion of this article’s content should be construed as legal or accounting advice. A copy of SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Links are being provided for information purposes only. SWMG is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. SWMG is not responsible for the content of any website. Or the collection or use of information regarding any website’s users and/or members. Important Disclosure.

Please Note: Stephens Wealth Management Group does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SWMG’s website or article or incorporated herein and takes no responsibility for any such content. Such that information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Browse by Category