How should insurance policies, bank accounts, retirement policies, and other beneficiary designation accounts be handled in regards to minor children? More often than not, parents want to be able to provide for their minor children from these accounts if something is to unexpectedly happen to them.
To determine what happens in this scenario, let us start with an example. A mother designates her minor (7 year-old) son as the beneficiary on a $50,000 life insurance policy. The mother unexpectedly passes with her son as the sole beneficiary on the life insurance policy. What happens to the money?
In Oklahoma law, a minor is legally incapable of holding and managing that property until he reaches the age of majority. Which, in Oklahoma, is the age of 18 years old. While he is still a minor under the age of majority, the property must be managed by another person such as a guardian or a custodian. Most importantly, a financial institution will legally force a guardian or custodian to obtain Letters of Guardianship from the court in order to release the funds into the control of the guardian or custodian. This is an expensive process due to the attorneys fees, filing fees, accounting fees, and other assorted court costs.
In the above scenario, the minor child can take over the management of the money or property once he reaches the age of majority at 18. But, there are better ways in order to insure that minor child receives their inheritance. Instead of leaving the minor child as a beneficiary on a life insurance policy, retirement account, or any other beneficiary accounts, you are able to set up a revocable or irrevocable trust that has your minor child as the beneficiary. This allows you to set certain guidelines and standards that will control what the minor child is allowed to do with the money that is inherited.
A trust does not expire when a minor child reaches the age of majority at 18, but instead it can still provide guidance on how to manage the property into adulthood. A trust can provide guidelines on education, disbursements of funds, who is allowed access to the property, and other guidelines that the creator of the trust wants to implement.
The creator of the trust is allowed to use the trust to benefit the minor child without the need and cost of getting the court to appoint a guardian. This is helpful because it allows the parent to control the types of expenses they want for their child including health, education, and other general expenses the child may accrue before they reach the age of majority.
It is important to think about these types of situations ahead of time when thinking about the future of your finances and the future of your children. There are important legal matters that must be addressed depending on the choices you make in terms of estate planning. Selecting a beneficiary plays an important part in these legal matters, and the attorney at Skillern Law Firm can help you manage your estate plan according to your wishes and to ensure that your minor children are properly cared for in the event something unexpected happens. Call us today or book an appointment online to help prepare for your future!