Matters of Life and Death

By Jehan Crump-Gibson

Michigan Chronicle

https://michiganchronicle.com/

Little Beneficiaries, Big Problems

One of the biggest mistakes people make is naming minor children as beneficiaries on accounts and policies. The thought is “I’ll avoid probate court because I have beneficiaries named and they’ll get the money directly.” This is only partly true. That money will avoid probate court on the FRONT end, not the BACK end. Why is that?

Minor children are legally unable to contract or to manage money. Because of this, financial institutions often require probate courts to appoint a conservator to control the funds left behind for a child until the child reaches the age of majority. This can cause delays, increased fees and court control over how the money is used. This applies no matter who the child’s surviving relatives are, even if it is their own parent.

Let’s take Jill, for example, who is a 34-year-old single mother with an 8-year-old daughter and 6-year-old son.

She works as a nurse with one of the big health systems. She has a whole life insurance policy through work with a $100,000 death benefit and a separate term policy that has a $1,500,000 death benefit. She also has a 401(k) plan. She has named her two children as beneficiaries on all these accounts because, after all, she is leaving everything for them.

Jill works 12-hour shifts, rips and runs with the children’s activities, and helps care for her ailing paternal grandmother, who lives with her. She has not been feeling the best lately, but she pushes through and vows to make an appointment with her primary care doctor soon.

One day, Jill unexpectedly experiences a ruptured aneurysm and passes away.

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Obviously, her family is shocked and devastated by the loss. Her mother Renita takes in the children and begins to go through Jill’s paperwork. She is relieved when she sees that the children are named as beneficiaries— that is until she calls the financial institutions and is informed that they require the court appointment of a conservator to release the funds. She cannot understand why a court must get involved when she is the children’s grandmother and they are in her care!

Renita must go through probate court proceedings. Assuming she is appointed by the court as conservator, the funds will likely have to be placed in a restricted account, and she will have to get court approval to make expenditures for the benefit of the children— until they reach age 18. Annual reports and supporting documentation are required.

This is the type of nightmare that proper planning can avoid. The best option if there is a minor beneficiary – whether this is a child, grandchild, niece, nephew, cousin or godchild – is to set up a Trust.

The Trust will dictate who manages the money for the children and how it is to be spent— all without court involvement.

Alternatively, there are Michigan Uniform Transfer to Minors Act (UTMA) accounts that may be appropriate for smaller accounts and policies. The Michigan Uniform Transfer to Minors Act allows a person to transfer property, such as bank accounts, securities, life insurance policies, etc. to a minor to be held for the benefit of that minor until that individual reaches the age of 18 and in some cases, up to the age of 21.

These accounts or may or not be appropriate depending on the type of asset and the value. The important takeaway is that you have options to avoid probate court entirely. Contact an experienced estate planning attorney today!

Attorney Jehan Crump-Gibson is the Co-Founder and Managing Partner at Great Lakes Legal Group PLLC, where she concentrates her practice in probate and estate planning, business and real estate matters. Great Lakes Legal Group is a growing black-owned law firm serving clients throughout the state of Michigan and in federal courts across the country. Jehan has served as Faculty for the National Business Institute and the Institute of Continuing Legal Education concerning business, probate and estate planning matters. She is a legal analyst with Fox2 Detroit’s The Noon and the author of the book A Matter of Life and Death.

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