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Minors as Qualified Plan Beneficiaries

The question of what happens with one’s assets at death is a major aspect of planning for many of us. Necessarily, that planning must address the possibility of death being earlier or later than what normally might be expected and so directions should be in place to meet any eventuality. Of course, the beauty of the planning is that in most cases we can revisit the plan and update as circumstances change and time passes.

That brings us to those who have invested in qualified retirement plans and who have children who are presently minors. In order to provide for those children, it is not uncommon to name them as designated beneficiaries. Of course, a minor child would not be able to control the plan benefits as that role would be fulfilled by a trustee until the child reaches majority. One of the advantages of naming a child as beneficiary is that under the new law, the stretch for distributions over the beneficiary’s life expectancy continues throughout the child’s minority. It is only when the child reaches their majority that the ten year rule for distribution kicks in.

State law typically governs as to when a child reaches majority and varies somewhat from state to state. However, it is important to note that where a child may be considered as not having attained their majority where the child is under the age of 26 and has not yet completed a specified course of education. This would delay the expiration of the stretch and defer the ten year rule until the child was 26 (and theoretically better able to manage the funds). A child who is disabled is also considered as not having attained majority and would be able to benefit from the stretch indefinitely.

This approach is not for everyone and would not fit the plan participant’s desires in some cases. However, this does have the advantage of not requiring the creation and administration of a trust for the child as would be necessary with other types of assets. Consult with your tax and planning professionals to see how this could benefit you and your children.

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