Minors as IRA Beneficiaries
Natalee Esposito XPYRIA Team Insights
Beneficiary designations are a key part of Estate Planning. The designations will ensure your hard-earned money is passed along as you intended. Family members are common beneficiaries chosen -- predominately spouse and/or children. Determining who to name as a beneficiary can be a difficult decision which involves many factors. There are several often overlooked factors that should be considered, particularly with beneficiaries under 18 years old.
When a minor is named as a beneficiary, the unintended result can be complicated and costly. Most states have limits on the amount of assets a minor can receive as an inheritance. If above the limit, a judge must appoint a special property guardian (also known as custodian or conservator) to manage the assets until the minor is an adult. Many people mistakenly believe the person(s) they name as a guardian to physically take care of their children is sufficient. If a property guardian is not specifically named in the designation or in your will, a judge will appoint one. In some states, including PA, the courts typically appoint an unrelated person or corporate guardian. In addition to court filing costs, the special guardian will charge an annual fee for the management of the assets. The state may also require the assets to be held in conservative investments, with little gain, such as a money market fund. Another set of complications and costs arrive anytime the minor needs money. The guardian must approve the request and report it to the court if annual accounting filings are not already required.
As you can imagine, every time the courts are involved, this means more time and money taken away from the minor’s assets. There are several ways to avoid the complications and extra costs such as a Trust. Due to the complications that can arise, consulting an Estate Planning attorney is advised. They can provide the best options for your personal situation.