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When you’re putting together an estate plan, it’s only natural to want your children to inherit what you’ve worked hard to build. Many parents assume that listing a child as a beneficiary on a life insurance policy or bank account is the easiest way to make sure they’re taken care of.
But naming a minor as a beneficiary can actually create serious complications—and in some cases, delay or derail your wishes entirely. If you’re considering naming a child or grandchild in your estate plan, here’s why you might want to take a different approach—and what to do instead.
What Happens If a Minor Inherits Directly?
Under Texas law, minors can’t directly control money or property. Therefore, if a child is listed as the beneficiary of a life insurance policy, retirement account, or bank account, a court will likely be required to intervene.
Here’s what that can look like:
- A court-appointed guardian will be assigned to manage the funds on the minor’s behalf.
- That guardian may not be the person you would’ve chosen.
- The child receives complete control of the money at age 18, regardless of maturity or circumstances.
This setup is not only expensive and time-consuming, but it also removes your ability to shape how the funds are used.
Real-World Example: A Costly Oversight
Imagine this: a parent names their 15-year-old son as the sole beneficiary on a $250,000 life insurance policy. Tragically, the parent passes away unexpectedly. Because the child is underage, the insurance company can’t release the funds directly.
Now, the family must go to court to request a guardianship, costing time, legal fees, and stress during an already painful time. And when the child turns 18, he receives a large sum with no restrictions on how it’s spent. There’s no protection from poor choices, outside influence, or financial mistakes.
This situation plays out more often than you’d think—and it’s entirely preventable.
Why Naming a Guardian in Your Will Isn’t Enough
Some parents believe that naming a guardian in their will solves the issue. But guardianship of the child and guardianship of the child’s property are treated separately.
Even if your will names someone to care for your child, the court may still need to appoint a financial guardian. And if your beneficiary designation bypasses your will—like most life insurance or retirement accounts do—that property is governed by the beneficiary form, not your will. So, unless you plan ahead, the money and the guardian may not align the way you’d hoped.
A Better Option: Create a Trust for the Minor
The safest and most flexible way to leave money to a minor is through a trust. You can create a trust during your lifetime or through your will (called a “testamentary trust”).
Here’s why it works:
- You choose the trustee—someone you trust to manage the money wisely.
- You decide the rules—how and when the funds can be used (e.g., education, medical care, or housing).
- You set the timeline—the child doesn’t get complete control at 18 unless you want them to.
A trust offers structure and protection, ensuring the money benefits your child without overwhelming them or exposing the assets to unnecessary risk.
What About UTMA Accounts?
Some parents use Uniform Transfers to Minors Act (UTMA) accounts as a simpler alternative. These allow you to transfer money to a child with a custodian managing the funds until the child turns 21 (in Texas).
While helpful for small gifts or savings, UTMA accounts still result in outright ownership at a young age. They also offer less flexibility than a trust. For larger inheritances or long-term planning, a trust is almost always the better choice.
How to Update Your Beneficiaries the Right Way
If you currently have a child or grandchild named as a direct beneficiary, it’s a good idea to take another look. You can:
- Create or update a trust that names your minor beneficiaries.
- Revise your beneficiary designations to name the trust—not the minor—on accounts like life insurance, IRAs, or investment accounts.
- Review your will and powers of attorney to make sure they align with your current wishes.
An experienced estate planning attorney can walk you through the process and help ensure your paperwork is completed correctly and legally valid under Texas law.
Protect the People You Love with a Smarter Plan
Leaving an inheritance to a minor sounds generous, but without a plan, it can do more harm than good. The goal isn’t just to leave money. It’s to leave it wisely, in a way that supports your child’s growth and well-being.
At the Law Office of Carey Thompson, we assist families throughout Texas in making informed, confident decisions about their estate plans. If you have children or grandchildren you want to provide for, we’ll help you create a plan that actually works when it matters most. Contact us today to schedule a consultation.