Can You Put Your Child as a Beneficiary?

Naming a beneficiary is a fundamental step in ensuring your assets are distributed according to your wishes after your death. A beneficiary is an individual or entity designated to receive benefits from an account, policy, or other asset. This designation provides a clear directive for financial institutions, streamlining the process for your loved ones and helping to avoid potential complications.

Understanding Beneficiary Designations

Beneficiary designations apply to various asset types, allowing for a direct transfer of funds or property upon the owner’s death. Common examples include life insurance policies, retirement accounts like 401(k)s and Individual Retirement Accounts (IRAs), annuities, and certain bank or investment accounts designated as Payable-on-Death (POD) or Transfer-on-Death (TOD) accounts. These designations typically bypass the probate process, allowing assets to transfer more quickly to the named recipients.

You can name individuals, trusts, or charities as beneficiaries. The process involves requesting a form from the financial institution, completing it with the full legal name and relationship of the recipient, and submitting it.

When designating beneficiaries, you can name both primary and contingent beneficiaries. A primary beneficiary is the first in line to receive the benefits. If there are multiple primary beneficiaries, you can specify how assets will be divided. A contingent beneficiary is a backup, designated to receive assets only if all primary beneficiaries are unable to do so, such as if they predecease the asset owner, cannot be located, or refuse the inheritance.

Specific Considerations for Minor Children

While you can name a child as a beneficiary, minors generally cannot directly own or manage significant assets until they reach the age of majority, typically 18 or 21, depending on state law. If a minor is named as a direct beneficiary without further planning, a court may need to appoint a legal guardian to manage the inherited assets. This court-supervised guardianship can be time-consuming, expensive, and may not align with your wishes for the asset’s distribution or use.

Several options exist for designating assets for minor children. One common approach is to establish a custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These acts allow you to appoint an adult custodian to manage the assets for the minor until they reach the age of majority, at which point the assets transfer directly to the child. The beneficiary designation should be specifically titled, for example, “John Doe as Custodian for Jane Doe under the [State] Uniform Transfers to Minors Act.”

Another option is to establish a trust, such as a testamentary trust created within your will or a separate living trust. A trust allows you to name a trustee who will manage and distribute assets according to specific instructions in the trust document. This provides greater control over how and when the child receives the inheritance, potentially staggering distributions over time or at specific milestones. The trust itself would be named as the beneficiary of your assets, rather than the minor child directly.

The appropriate method depends on the amount of assets and your desired control over distributions. For smaller amounts, a custodial account may suffice. Larger sums or a desire for more nuanced distribution rules often favor a trust. Court-appointed guardianship is generally a less desirable route due to its court oversight and lack of personalized control.

Broader Planning Aspects

When considering beneficiaries, especially multiple children or grandchildren, understanding distribution methods like “per stirpes” and “per capita” is important. “Per stirpes,” Latin for “by branch,” means that if a named beneficiary predeceases you, their share of the inheritance passes down to their descendants (e.g., their children). This ensures each family branch receives its share, even if a direct heir is no longer living. For instance, if you have three children and one passes away before you, that child’s share would be divided among their own children.

In contrast, “per capita,” meaning “by head,” dictates that assets are divided equally among the surviving beneficiaries in a specific class. If a beneficiary predeceases you under a per capita designation, their share is reallocated among the remaining living beneficiaries, and their descendants do not inherit that portion. For example, if you name three children as per capita beneficiaries and one passes away, the remaining two children would split the entire inheritance. Carefully selecting between these methods helps ensure your assets are distributed precisely as intended.

Regularly reviewing and updating your beneficiary designations is essential. Life events such as births, deaths, marriages, divorces, or changes in financial goals necessitate updates to ensure your designations reflect your current wishes. Outdated designations can lead to unintended consequences, disputes, and delays in asset distribution. Beneficiary designations on specific accounts often override instructions in your will. If a beneficiary form is not updated, assets could go to an unintended individual, regardless of what your will states.

Understanding the tax implications for beneficiaries is also important. Inherited cash or property is generally not subject to federal income tax for the beneficiary. However, inherited retirement accounts, such as traditional IRAs or 401(k)s, are subject to income tax when distributions are taken, as the original owner did not pay tax on those contributions. Life insurance proceeds are generally income-tax-free for the beneficiary.

Federal estate tax applies only to very large estates, exceeding $13.99 million per individual in 2025, and this tax is paid by the estate before assets are distributed, not by the beneficiary. Some states may impose an inheritance tax, which is paid by the beneficiary, with rates often varying based on the relationship to the deceased. Capital gains tax may apply if inherited assets, like stocks or real estate, appreciate in value after the date of inheritance and are subsequently sold.