What Happens to the Inheritance of a Minor Beneficiary

Family meeting with Insurance Agent.
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Minors can be beneficiaries, but they can't legally own their property until they come of age. So what happens when you leave an inheritance to a beneficiary who is still a minor? It depends on the nature of the bequest and state law. 

Minors as Beneficiaries of Direct Gifts 

When property is left directly to a minor beneficiary, such as through joint ownership of property or a payable-on-death account, the minor won't have the legal authority to take control of it.

The same holds true for inheritances received via a last will and testament or from an intestate estate -- the deceased died without a will or his last will and testament, or living trust was drafted improperly, so its terms were not honored.

In this case, state law determines who should receive the decedent's estate and in what measures. Typically, his closest kin will inherit the property. His estate will only go to his more distant relatives if he leaves no spouse or children. 

What happens to a minor's inheritance in these cases depends on the laws of the state where the minor lives and the value of the bequest.

UTMA, UGMA and 529 Accounts

If the value of property left to the minor is not significant, usually $20,000 or less, state law may allow an interested adult such as the minor's parent or grandparent to request that the minor's inheritance be placed in an account established under the state's Uniform Transfers to Minors Act or Uniform Gifts to Minors Act.

These accounts can hold the funds for the child until he reaches the age of majority -- 18 in most states, but sometimes 21. Also, some states allow an interested adult to request that the property is placed in a 529 account for the benefit of the minor. This is a tax-advantaged savings plan for future college costs.

In some states, a parent can personally assume management of very small amounts, such as gifts of $5,000 or less, on behalf of their minor child. The parent would not have to utilize such an account. 

Conservatorships for Minors as Beneficiaries 

If the value of the assets left to a minor is more than can be placed in a UTMA, UGMA or a 529 account, or if the laws of the state where the minor lives don't authorize these types of accounts, for inherited assets, a court-supervised conservatorship must be established for the benefit of the minor.

The court-appointed personal representative or executor of the estate will file a petition requesting that a conservator is appointed on behalf of the minor to manage the inheritance when a probate estate has been opened. If there is no probate estate, such as if the minor being named as the beneficiary of a life insurance policy or retirement account, then an interested adult can file the petition.

A judge will then decide who to appoint as the minor's conservator after hearing testimony from all interested persons, sometimes including the minor if he or she is over a specific age, usually 12 or 13. The exact age is determined by state law.

In most cases, the child's parent is chosen unless both parents are deceased or otherwise determined to be inappropriate.

The appointed conservator will take over management and control of the minor's inheritance until the minor becomes an adult. Parents leaving inheritances to their minor children can avoid a lot of this difficulty by naming a conservator in their estate plans.