How Should A Life Insurance Beneficiary Be Named If A Minor?

Dangers Of Leaving Life Insurance Money To A Minor Child

It’s illegal for a minor to be given a large sum of money from a life insurance policy. Most companies allow you to list them, but never bother to tell you that the money will not actually reach the child until they turn 18. If a minor is named on a life insurance policy and the policyholder dies, probate courts will hold a hearing to name a guardian who will watch over the money until the child is old enough to inherit the money. In many cases, probate courts choose an area bank to manage the money until the child’s 18th birthday.

Making Sure Your Wishes Are Met

If you want your child to benefit from your life insurance money, it’s always best to set up a trust for your minor child or children. Talk to a lawyer to have this performed legally. You also have the option of designating how the child will use the money when it is inherited. If you wanted that money to used specifically for college tuition, you can set it up with the estate’s trustee to have this happen.

It’s also possible to set up the distribution of the life insurance funds so that the child receives a portion of it at his 18th birthday, at the 21st birthday and then at the 25th birthday or however you choose. A trust fund is the best way to ensure the money you leave your child is handled properly until your child is the legal age to receive the inheritance. Plus, by setting up a trust fund, you can arrange it so that the money sits in a high-interest account building even more value over time.

Legally Set Up A Guardian

You can also set up a guardian who will watch after your minor child’s best interests. In most states, the guardian must be 21 years of age or older. You can have a lawyer draw up the proper paperwork or ask your state government if a Uniform Transfers to Minors Act exists in your state and find out how to name a custodian to act on your minor’s behalf.

The danger to setting up a guardianship is that the guardian will have control of the money until your child is of the legal age. There is a risk for theft or misuse of funds. If the guardian is genuine, there is still the chance that money will be lost by poor investment decisions made by the guardian you select. Make sure you truly trust the guardian you select and that they share your investment ideals.