After a divorce, it is important to update your beneficiary designations and power of attorney for healthcare/finance. Although many are quick to update, it is imperative that you do not name your minor children as direct beneficiaries. The reason is two-fold. First, children will not be able to access funds until they reach 18 or 21, the age of majority. This delay could seriously impede funds that the children need for care, education, housing, etc. Moreover, to protect the assets of a minor, state law requires that a guardian be appointed to administer proceeds payable to a minor child. If no guardian is named, your heirs will have to pay the expense to appoint one to receive and administer the proceeds. Second, when the minor reaches the age of majority, they will be given the proceeds all at once. More often than not, an 18 or 21-year-old with immediate access to large sums of money will not be in their best interest.
The quick and shakey solution: Name a guardian of the children as direct beneficiary. Although many people trust the guardian they name to be responsible with finances, the guardian will have no duty to actually use the funds as directed or use the funds in the minor’s best interest.
The solid solution: Create a revocable trust or update your will to create testamentary trusts for the minor children. A revocable trust or testamentary trust can name a successor trustee/or trustee that will have a duty to administer the funds exactly how you would want it to be administered. Moreover, the trustee will have access to funds to provide for the minor children’s health, education, maintenance, and support. Further, the funds will not have to be dispersed all at once when the minor’s reach the age of majority. You will be able to set age or other benchmarks as to when and how funds will be distributed.
For more information, contact me at 414-491-3283 or at david.watson@watsonatlaw.com.
