How to Handle a Beneficiary Who Is a Minor

Learn how to set up trusts, guardianships, and custodial accounts when naming minors as beneficiaries on financial accounts.

  1. Understand why minors need special arrangements. Minors cannot legally own substantial financial assets or make binding financial decisions. If you name a child directly as a beneficiary without proper structure, a court will likely need to appoint a guardian to manage the money. This creates delays, legal fees, and court oversight that continues until the child turns 18 or 21, depending on your state.
  2. Consider a revocable living trust for larger estates. A trust lets you control when and how the minor receives money, even after you're gone. You can specify they get 25% at age 25, 50% at 30, and the remainder at 35, for example. The trustee you name manages the money according to your written instructions. This works best for estates over $100,000 where ongoing management makes sense.
  3. Use custodial accounts for smaller amounts. UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) accounts let you name a custodian to manage money until the child reaches age of majority. The custodian controls the account, but the child automatically gets full access at 18 or 21, depending on your state. This works well for life insurance payouts under $50,000 or retirement account beneficiaries.
  4. Name contingent guardians and trustees. Always name backup options in case your first choice cannot serve. For trusts, name at least two successor trustees. For custodial accounts, name alternate custodians. Include full legal names and contact information. Review these choices every 3-5 years as people's circumstances change.
  5. Update beneficiary forms with proper language. Contact your life insurance company, 401(k) administrator, and bank to update beneficiary forms. Use language like 'John Smith as Custodian for Minor Child Jane Smith under UTMA' or 'The Jane Smith Trust dated [date].' Generic language like 'my children' can create problems. Get confirmation in writing that they've processed your changes.
  6. Review and update as children age. Check your arrangements every 2-3 years, especially as children approach age of majority. You might want to extend trust terms beyond age 18 or switch from custodial accounts to trusts as amounts grow larger. Also review when you have additional children, divorce, or remarry.