What Happens if Minor is a Beneficiary; child playing with a piggy bank.

What Happens if a Minor is a Beneficiary?

Administering an estate can bring up some tricky questions and logistical issues. After all, you’re the one in charge of making sure all the deceased’s (sometimes called the decedent’s) assets get distributed. 

Unfortunately, not everyone who writes a will or names a beneficiary understands the full implications of their actions. People often name their minor children or minor grandchildren as beneficiaries, but minors are not allowed to own financial property under most state laws. So if the child or grandchild is still a minor upon the death of the decedent, what happens? 

If you’re the executor or administrator of an estate where a minor is named as beneficiary, you likely have some questions about what comes next. 

Let’s dive into the details.


How minors become beneficiaries

There are a few ways minors can become beneficiaries: 

  1. They’ve been named as beneficiary in a last will and testament, and the decedent didn’t name a property guardian or establish a trust for management of the assets. 
  2. They’re next in line for the inheritance of a decedent who died without a will. The order for inheritance in this situation is called intestate succession
  3. They’ve been named as the beneficiary of an insurance policy or investment account, and the policy holder died.
  4. They were a joint owner of a property with the decedent, and the property flowed directly to them on the decedent’s death. 
  5. They were named the beneficiary of a payable-on-death account held by the decedent. 

In all of these situations, the minor can legally inherit the money that has been left for them. However, they may not legally take control of those funds until they’ve reached the age of majority. In most states, that’s 18 years old. 


What happens to the inheritance?

Of course, the reason a minor can’t take control of these funds immediately is clear. Most people under the age of 18 don’t have the legal authority or the mental or emotional maturity to effectively manage their finances. 

So if the minor can’t take control of those funds, what happens to the inheritance? And what’s your responsibility as the executor?

As the executor of an estate, you’re always obligated to follow the law. There are two basic ways minors’ inheritance can be handled if the decedent didn’t already establish a trust. 

The funds are either put into a special account for the benefit of the minor or they’re managed by a property guardian, sometimes called a conservator. 

Let’s dive into both of these options. 


Special accounts for minors - UTMA, UGMA, and 529 accounts

If the inherited funds are less than $20,000, most states allow the money to be held in a special account managed by a custodian. These accounts are established under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). 

An executor administering an estate where a minor is the intended beneficiary of assets less than $20,000 can petition the probate court to appoint a UTMA or UGMA custodian to manage the account. The custodian may spend and invest the assets for the minor’s benefit, and they don’t have to be overseen by the court after their appointment. 

Once the minor reaches the age of majority in that state, they gain full access to the account. In some states, funds can remain in a UTMA account until the minor is 21 years old. 

Need another option for managing the funds while the recipient is a minor? A 529 account, a tax-saving account that sets aside money to be used for the child’s college education or private tuition while in elementary, middle, or high school. 

Some states will allow a parent to personally manage small amounts of inheritance, such as $5,000 or less, on the child’s behalf without setting up a UTMA or UGMA account. 


Property guardianships for minors

In some cases, the minor receives an inheritance greater than what is allowed in a special account or their state doesn’t allow for those types of accounts. 

In these instances, the executor or administrator of the estate petitions the probate court to appoint a property guardian to manage the funds on behalf of the minor. The property guardianship — sometimes called a conservatorship — is then supervised by the court until the minor reaches the age of majority and takes control of the funds. 

A property guardian is often the minor’s parent. However, the probate court judge may take testimony from interested parties, including older minors themselves. 

If the minor’s parent or personal guardian is not considered an appropriate choice — for instance, if they have a history of financial mismanagement or crime — the court will appoint another individual. 

If a minor has inherited funds but there is no probate proceeding underway, an interested party (such as a parent or guardian) can request that the court establish a property guardianship. For instance, say the inheritance occured through a life insurance or retirement account beneficiary designation, but the deceased’s estate did not go through probate.

See: How does probate guardianship work?

As you can see, administering an estate that includes a minor as a beneficiary can be a complex process. We have a range of probate plans that provide guidance at affordable prices throughout the entire probate process.