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Grandchild as a Beneficiary

It is common for grandparents to include their grandchildren in their estate plan. Unfortunately, leaving an inheritance to grandchildren can lead to some complications.

Grandparents naturally want to keep things as simple as possible. That often means designating a specific life insurance policy, annuity or retirement account as benefiting the grandchildren. The paperwork is easy and there is no need to change the Will or Revocable Trust. However, beneficiary designations in operation are not always as easy as they appear.

After death, the beneficiaries will need to follow the rules of the bank, insurance company or retirement plan administrator in order to claim their inheritance. In most cases those rules prohibit distributing money directly to a minor. For these policies or accounts, the grandchild’s share can only be distributed to a court-appointed guardian. Obtaining a court-appointed guardian is time consuming, expensive and inefficient.

Thus, if any of the grandchildren are likely to be under age 18 when they receive their inheritance, it may be best to make provision for the grandchildren in your Will or Revocable Trust. The Will or Revocable Trust can include an instruction to hold a minor grandchild’s inheritance in a custodial account under the Uniform Transfer to Minors Act, which is much, much easier than getting involved with a court-appointed guardian.

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