On September 16, 2021, Sand Hill CIO Brenda Vingiello, CFA joined the CNBC Halftime Report panel once again and discussed what positive catalysts investors canread more
The Proper Way to Name a Minor as Your IRA Beneficiary
One of the more common requests we hear from clients is their preference to name their minor children as IRA beneficiaries. Unfortunately, minors are legally unable to own property, and therefore cannot inherit IRA assets in their own name; however, there is a “right” way to pass IRA assets to your minor children, and it all has to do with how the beneficiary designation is worded. Naming minors outright will lead to unnecessary complications for their legal guardian and delay the transfer of assets to your intended recipient.
Historically, passing IRA assets to minor children or grandchildren has been a successful tool to pass wealth to future generations, as distributions from those inherited IRA accounts could be “stretched” over the course of that young person’s lifetime. Today, this is no longer the case. The SECURE Act was signed on December 20, 2019 and has significantly changed the landscape of retirement account distributions, capping the timeframe to fully distribute an inherited IRA to just 10 years from the original IRA owner’s death.
As it pertains to minors, they could fall under the “Special Rule for Minor Children”. Minor children will be allowed to take age-based distributions until they reach their state’s age of majority, and then the 10-year rule will kick in. The age of majority is the age at which minors cross into legal adulthood. In California, (and in almost every state including the District of Columbia), the age of majority is 18 years old. There are only three exceptions: In Alabama and Nebraska, it is 19 years old, and in Mississippi it is 21. It’s important to note that this special rule does not appear to apply to all minors—so grandparents leaving IRAs to a grandchild would not fall under this rule. For some highlights on the SECURE Act, I encourage you to read Making Retirement More SECURE.
Beyond using inherited IRAs as a wealth transfer tool, another reason to name a minor as beneficiary is when you simply have no other option. There are more preferable avenues to leaving IRA assets to a minor child, which can be addressed through careful estate planning. However, during times of transition, such as the finalization of a divorce, choosing the estate planning route may not be feasible at that moment in time. In these instances, you can name a minor as an IRA beneficiary, but you must also identify on the beneficiary designation form who will act as that minor’s guardian for the IRA assets. This guardian will be charged with managing the inherited IRA on the minor’s behalf until they reach legal adulthood. If you fail to identify a guardian for the minor, the IRA custodian will require further documentation—such as a court order—stipulating whom has been appointed as guardian. It is best to identify the guardian in advance, as you would likely have minimal control over whom the court appoints.
As a general rule of thumb, retirement account beneficiaries should be reviewed on a regular basis to ensure the listed parties are still in keeping with the account owner’s wishes. As life circumstances change, so too could your plan for whom will inherit your retirement assets. Beneficiary designations can be changed at any time and your team at Sand Hill is always available to review your current beneficiaries and coordinate any updates when necessary.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.