Making the Decision on Beneficiaries: Minor Accounts
When taking out a new life insurance policy, your agent will ask you to provide the name of a beneficiary. In most cases, those who are married will name their spouse as the primary beneficiary of a life insurance policy. Most times, a secondary beneficiary is encouraged by most agents. In these cases, many people elect to designate their secondary (or contingent) beneficiaries as their children. While this is perfectly sensible, there are some drawbacks to this selection. Should the policy holder and primary beneficiary die before all of the children are of legal age, the children cannot legally collect the funds from the policy. This is because it is not legally possible for a minor to have assets transferred to them. Therefore, it it important to know how to make a minor a beneficiary to life insurance. There are several different methods to accomplish this, but each one must be carefully reviewed with a financial advisor or attorney to find out which method works best for your individual needs.
Minors as Beneficiaries: Special Challenges
When naming a minor as a beneficiary you need to make sure that you have identified the best way. Learning how to make a beneficiary to life insurance need not be complex but may require the advise of a financial advisor or estate planning attorney. Here are some of the options that you may consider:
Naming a custodian in a will or trust - for the sake of safety, you should include the name of a custodian or guardian for minor children in your will or set them up as a successor trustee to a trust. You can also specify that this person would be the custodian of the life insurance policy proceeds due to the child;
Set up an UTMA/UGMA account - you may appoint a custodian by setting up a custodial account as an UTMA or UGMA (Uniform Transfers or Uniform Gifts to Minors Act) which is for the benefit of the minor. You can then designate your life insurance beneficiary as that specific account. It is important to note that South Carolina and Vermont are the only two states who have not adopted UTMA accounts.
Beneficiaries: Legal Considerations
While it may be challenging to think about creating separate accounts to transfer funds to a minor, it will be far more beneficial to plan ahead. For those rare instances when both parent’s lives cease at the same time, it is not helpful to have life insurance benefits tied up and not accessible for their care. Estate planning is not only about protecting your estate from taxation, it is making sure that your children are cared for if you are not able to care for them yourself. A qualified estate planning attorney or a financial advisor will help you find the methods that work best for your personal circumstances.
- New York Life: Don’t Name Minors as Policy Beneficiaries https://www.newyorklife.com/nyl/v/index.jsp?contentId=12034&vgnextoid=7a5ece94229d2210a2b3019d221024301cacRCRD
- Investopedia; Dave, Pooja: Life Insurance: How to get the most out of your policy https://www.investopedia.com/articles/pf/06/lifeinsurance.asp
- Insure.com Life Insurance Trusts for child beneficiaries https://www.insure.com/articles/lifeinsurance/child-beneficiaries.html
- Term Life Onlne Naming a Beneficiary https://www.term-life-online.com/beneficiary-of-a-life-insurance-policy.html