Should I Make my Young Child or Grandchild the Beneficiary of my Retirement Account?

Oftentimes, clients want to leave a retirement account to a minor child or grandchild (one who is under 18 years old). Sometimes a spouse is the primary beneficiary (would be first in line to receive the account upon the owner’s death) and minor children are the contingent beneficiaries (would be second in line to receive the account upon the owner’s death).

It is generally a good idea to have a named beneficiary of a retirement account, like a Traditional IRA or 401(k) or other tax deferred retirement account, because a named beneficiary is able to stretch distributions throughout the beneficiary’s lifetime, the younger the beneficiary the longer he can stretch out those distributions, mitigating the income tax due from the distributions.

The key, however, is to ensure that a custodian is named for that minor child on the change of beneficiary form to avoid the need for a court appointed guardian (Assuming that there is a trusted loved one available to serve as custodian of the funds). Under the Ohio Transfers to Minors Act, a custodian can be named to manage the funds up until the child turns 25. Without the custodian language on the change of beneficiary form, a guardian will need to be appointed by the court (requiring addition cost and administrative hurtles) and the minor will be given full access to the funds at age 18.

To learn more about the leaving retirement accounts to minors, the proper language to use on a change of beneficiary form, and estate planning in general, contact a Cleveland estate planning lawyer.