Estate Planning for Minor Beneficiaries

Young Asian family reading to children

In this time of COVID-19, I have had a lot of questions from parents about whether there are any special considerations they should have when planning for the unthinkable: their own incapacity or death while their children are still minors. The answer is yes. If COVID-19 has caused you to think about what would happen if you are separated from your children while you are in the hospital or you are just concerned for their welfare and your legacy after you die, planning for minors is an important, necessary, and often difficult thing to do.

Whether you are married, divorced, single, or in a partnership, and you have or are planning to have minor children, grandchildren, or other minors to whom you would like to leave part of your legacy, this article is for you. At first blush, estate planning for minor beneficiaries may not seem any different than estate planning for adult beneficiaries, but there are many important distinctions that you should consider. Below are four of the most important considerations related to estate planning for minor children.

Who Will Take Care of my Child or Children If I am Incapacitated or Die?

Logically, if you have a spouse, and your spouse is the legal parent of your child (through blood or adoption), then your spouse will be able to take care of your child in the event of your death or incapacity. But what if you are divorced, a single parent, are in the process of artificial reproduction, or your spouse or the child’s other legal parent is unable to care for your child? It is important that you nominate a guardian to take care of your child in the event that you are either incapacitated or die.

Divorced Parents

Even with sole legal or physical custody awarded to you, generally speaking, if your former spouse is able to and is considered suitable to parent, he or she may be entitled to care for your children. However, while the court will look first to the surviving parent for placement, you should still nominate a guardian in your estate planning documents in the event the court deems that it is not in your child’s best interest to be cared for by the other parent. If the other parent is not a part of your child’s life, and you are now remarried, you may wish to consider step-parent or same-sex parent adoption to secure the rights for your new partner.

Single Parents

Perhaps you had a child on your own or the other biological parent is unknown or has died. In this circumstance, it is important to nominate a guardian to care for your child in the event you cannot. Simply having an agreement with the person whom you would like to care for your child will not be enough. However, with a proper nomination, the court can consider any person you formally name to be the guardian.

Parents Going Through Pregnancy, Surrogacy, or Assisted Reproductive Technology (ARTs)

If your child is not yet born or you have stored genetic material, you should consider carefully what your wishes would be for your child if the child is born and you are either incapacitated or have died. Or what should happen to your genetic matter if you can no longer have children due to an incapacity or because you have died? These concepts can be addressed in your estate planning documents so your wishes are known to a court, should the need arise.

Can I Name My Minor Children on My Beneficiary Designation Forms?

“Can” and “should” are important distinctions here. Yes, you “can” technically name your minor children on your beneficiary forms, but you “should” never do so. Why? If you name a minor child on a beneficiary designation form (whether it is life insurance, a bank account, a retirement account, other investment accounts, or the like), the company holding that money will not be able to release it to your minor child without court involvement.

Someone (whether it is the surviving parent or some other adult) will have to petition the Probate Court to have a conservator appointed for your child. The conservator will then be required to place the funds into a restricted bank account, with an extremely low interest rate (think typically less than 1% interest depending on the amount). The conservator cannot invest the money in a higher-yield account, and the conservator must report annually to the court with the precise dollar amount in the account. The conservator may not withdraw the money before the child reaches the age of majority without a court order, and the child is entitled to the full sum in the account when he or she turns the age of eighteen (18).

Unfortunately in 2020 alone, I have had three cases where a parent named a minor child directly on an account (two life insurance policies and one retirement account).

It is possible to petition the Probate Court for a protective order after the parent’s death, and if the court agrees, to set up a trust after the fact, if this happens. However, the court must conduct a hearing and issue an order to do so, there must be specific and numerous protections in the trust for the benefit of the minor, the surviving parent may not use the funds for routine parental obligations, and the minor and surviving parent (or guardian) must undergo an independent review by a Guardian Ad Litem, whose role it is to look out for the interest of the minor.

The absolute best way to avoid the problems mentioned above is to never name a minor as a direct beneficiary of any account or asset. The preferred method is to create a Revocable Living Trust (discussed below).

If I Create a Will, Do I Really Need a Trust?

Where minor beneficiaries are concerned, I always recommend creating a Revocable Living Trust (or common “trust”). The following reasons are why I always make this recommendation:

  1. A will does not avoid probate. Probate is the process your surviving heirs or loved ones will need to go through if you want to have certain types of assets transferred to them when you die. Those certain types of assets are “probate assets,” i.e. ones that are owned by you (the decedent) that have no other way of passing to your loved ones outside of going to court. A will has several useful purposes, but avoiding probate is not one of them.
  2. Creating a trust within a will does not avoid probate. When you create a trust within a will, it is called a “testamentary trust.” This type of trust may give your minor children some protection against the need to appoint a conservator or from receiving the funds at a young age, but it does not avoid the probate process. For that reason, testamentary trusts are rarely used.
  3. A stand-alone revocable living trust is the best way to avoid the probate process. This common type of trust will ensure your child does not inherit a lot of money and other assets at a very young age. Think of a trust like a safe—it holds certain assets that you put into the “safe” and protects them. It can protect the assets from creditors or from a child who is undergoing substance abuse problems, or most commonly from your child receiving them at a very young age, when they might spend the assets irresponsibly.
  4. A trust will allow your successor trustee to be able to provide for your child. A trust will allow the person administering the trust after you die or are incapacitated to be able to provide for your child’s health, education, maintenance and support throughout the lifetime of the trust, and then provide for additional lump-sum distributions when the child reaches a more mature age. Thus a revocable living trust is almost always recommended when minor children or college-aged children are involved.

Does the New SECURE Act Change How Minors Can Inherit Retirement Benefits?

Yes. Right before COVID-19 hit in March, 2020, Congress enacted the SECURE Act, which became law on January 1, 2020. The SECURE Act is a significant piece of legislation that affects many aspects related to your retirement assets, but of particular importance to this article is how your minor children can inherit retirement assets.

It is important if you wish to maximize the tax and savings benefits of retirement assets for your minor children, that you consider establishing a separate retirement asset trust for yourself and if you are married, for your spouse as well. There are significant benefits to creating this special type of trust when you are planning for your own minor children. However, this special benefit does not extend to minors who are not the account owner’s own child or children. Therefore, minor grandchildren, minor nieces and nephews, and other minor beneficiaries who are not the account owner’s children do not fall under these special rules.

Naming a simple revocable living trust and not a retirement asset trust could have very significant and likely negative consequences for your minor child, should you die while they are either a minor or engaged in a “specified course of study” (presumed to be college, but yet to be defined by Congress). The SECURE Act creates complicated scenarios for maximizing your child’s potential to inherit your retirement assets, whether those assets are regular retirement assets or ROTH retirement assets.

Ann Arbor Attorney Experienced in Estate Planning for Minors

While there are many aspects to consider when estate planning for minor children, the topics above are the most commonly discussed topics in my practice. If you have questions about estate planning for your own minor children, please do not hesitate to contact me to set up a Zoom consultation. I can be reached at or (734) 994-3000.

Mara Kent is an estate planning, probate, trust, and adoption attorney at the law firm of Nichols, Sacks, Slank, Sendelbach, Buiteweg & Solomon, PC in Ann Arbor, MI. She is the former co-chair of the Washtenaw County Bar Association Estate Planning and Probate Section (2018-2020), current member of the Board of Directors for the Washtenaw County Bar Association (2020-2021), a member of the Washtenaw County Estate Planning Council, and a member of the Probate and Estate Planning and Taxation Sections of the Michigan State Bar.