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Can a Minor Be a Contingent Beneficiary? What You Need to Know

Whether you are looking into the logistics of life insurance or putting together a trust, contingent beneficiaries are a vital factor. According to the American Council of Life Insurers, 90 million American families use life insurance to help create financial and retirement security. Understanding how your dependents would receive benefits or assets is important.

Let’s walk through what a contingent beneficiary is and who could be listed as one.

What is a Contingent Beneficiary?

First, let’s define the role of a contingent beneficiary. A contingent beneficiary is a backup to a primary beneficiary within a life insurance policy or trust. In a scenario where the primary beneficiary is unable or unwilling to accept a death benefit, a contingent beneficiary becomes the inheritor. Listing a contingent beneficiary ensures an inheritance or life insurance benefits will be passed down to an intended recipient.

Who Can Be Listed as a Contingent Beneficiary?

There are a variety of factors to consider when designating a contingent beneficiary. A contingent beneficiary could be a partner, family member, charity or dependent.

A minor can be listed as a beneficiary, although those under the age of 18 cannot directly manage inherited funds without additional steps in place. If you choose a minor to be a contingent beneficiary, a trust or custodial account should be considered to ensure the minor’s benefits are properly managed until they can legally claim it at 18.

If you name a minor directly, the process will go to probate court. When claims go to probate court, an adult is appointed to manage the money until the minor is old enough to manage it. This creates a costly and long process through the court system that can last up to a year or even longer.

While many people do list minors as contingent beneficiaries, the additional steps to claiming the benefits are vital to consider. To avoid the probate process, aim to name an adult or create a trust that allows the minor to directly inherit the money on your terms with your stipulations.

What Happens if You do not Have a Beneficiary Listed?

It is important to consider the downside of keeping this beneficiary role blank. When there is not a beneficiary listed, the death benefit is paid out to your estate sending proceeds into probate. The probate process can take a year or longer and could result in less of a benefit due to taxes and debt tied to your estate. Setting up a primary and contingent beneficiary gives you more control in who and how your assets are passed down.

To review, here are a few things to consider, when setting up your estate or life insurance plan:

  • Consider a trust to manage your assets and benefits.
  • Consider contingent adults you trust to manage your minor dependent’s benefits.
  • Review your life insurance beneficiaries and ensure you have selected a primary and contingent beneficiary.
  • Update beneficiaries as needed. 

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