Structuring Beneficiary Designations to Children
Bob Bible, Esq. – Law Corner
Whether structuring death benefit payments under a life insurance policy, a distribution scheme under a Last Will, or defining similar beneficiary designations, all too often, the structure simply reads, “All to spouse, and if none, all equally to kids or grandkids”. Though appearing to be a sound structure, providing for both a primary and contingent plan of distribution, the perceived simplicity of such a plan can be quickly disrupted by answering one question: “how old are the kids/grandkids”.
Under Florida law, any outright gift, inheritance, life insurance benefit, retirement account benefit or similar transfer to a minor beneficiary (someone under the age of 18) which exceeds $15,000.00 requires the establishment of a court supervised guardianship. Guardianship proceedings require hiring an attorney, adherence to a litany of statutory and procedural mandates, and can be both burdensome and expensive. So, for example, setting up beneficiary designations under a life policy or 401(k) plan where spouse is primary, and children are equal contingent beneficiaries seems to be a very sound structure. However, if circumstances over time result in benefits exceeding $15,000.00 becoming payable to an individual under the age of 18, that simple, straightforward structure now takes a more complicated course by having to set up a guardianship for that minor beneficiary in order to receive those benefits. Potentially even more problematic is determining who eventually undertakes those proceedings on behalf of the minor beneficiary, and whether, when the guardianship ultimately terminates at age 18, the individual will possess the experience, maturity and judgment to manage the gifted money wisely.
By combining gifts to minors (whether lifetime, through inheritance, or under contractual death benefits) with custodial accounts under Florida’s Uniform Transfers to Minors Act, or with a lifetime or testamentary trust (one created under a Last Will and Testament), the need for a guardianship, and the potential risks of poor money management by an 18 year old, are able to be avoided. Properly structured custodial accounts can delay ultimate distribution to a minor beneficiary until age 21 (possibly even age 25). Properly structured lifetime or testamentary trusts also avoid the need of a guardianship, and provide greater flexibility in defining the time when distributions are made by establishing incremental distributions, such as part at age 25, another part at age 30, and final distribution at age 35. By establishing custodial designations or implementing trust provisions in advance, you also control the person or persons who will be managing the funds received by a minor beneficiary on his or her behalf.
Planning for the protection of one’s family through a Last Will, lifetime trust, or by completing beneficiary designations requires more thought than simply designating the chronological order in which the family members receive the intended transfer. When it is possible that an intended beneficiary might be a minor at the time a distribution becomes payable, considerations aimed at eliminating the need for a guardianship, being able to define the timing of distributions to such individual, and controlling who actually manages the use of such funds for the minor beneficiary, should also factor into a properly structured estate plan.
If you need assistance developing an estate plan which involves, or could involve, minor beneficiaries, or for assistance with implementing any of your other estate planning objectives, at Bob Bible Law we have the knowledge and over 35 years of experience to help you navigate these decisions.
For more information, contact Robert W. Bible, Jr., Attorney At Law at 727/538-7739 (office), 727/710-5166 (cell) or by email. BobBibleLaw.com
