A common estate planning mistake is to designate a minor as beneficiary — or contingent beneficiary — of a life insurance policy or retirement plan. Insurance companies and financial institutions won’t pay large sums of money directly to a minor. Instead, they’ll require costly court proceedings to appoint a guardian to manage the child’s inheritance. And there’s no guarantee the guardian will be the person you’d choose.

Suppose, for example, that you’re divorced and appoint your minor children as beneficiaries. If you die while the children are still minors, a guardian for the assets will be required. The court will likely appoint their mother — your ex-wife — which may be inconsistent with your wishes.

There’s another problem with naming a minor as a beneficiary: The funds will have to be turned over to the child after he or she reaches the age of majority (18 or 21, depending on state law). Generally, that isn’t the ideal age for a child to gain unrestricted access to large sums of money.

A better strategy is to designate one or more trusts as beneficiaries of the policy or plan. This approach provides several advantages: Not only does it avoid the need for guardianship proceedings but it also gives you the opportunity to select the trustee who’ll be responsible for managing the assets. And it allows you to determine when the child will receive the funds and under what circumstances.