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Thinking of Naming Minor Children as Beneficiaries of Your Life Insurance Policy? Think Again

Having life insurance can help give you peace of mind in the event of your untimely passing, especially if you have young children. The proceeds from your life insurance can help support your children and protect their future.

If you’re trying to do right by your kids, you might consider making them your beneficiaries — the money is for them, anyway, so why not set things up so that it goes directly to them? While this may sound like reasonable logic, there’s more to consider. 

Choosing Your Life Insurance Beneficiary

When you set up a life insurance policy, you must name a beneficiary, which is the person or entity that receives the benefits of your plan. You can name one or more people, a trustee for an established trust, your estate, or a charity.

Even if your children are minors, it’s possible to name them as beneficiaries of your life insurance policy. However, it’s not always the wisest choice, as doing so can delay payout and cause a number of other problems. 

The Trouble With Appointing Minor Children Beneficiaries

Generally speaking, appointing a minor child as a beneficiary to a life insurance policy isn’t a good idea. In fact, it can actually lead to more issues and hardships after you’re gone.

Under legal beneficiary rights, minor beneficiaries aren’t allowed to personally receive proceeds from a life insurance policy until they turn 18. Until then, an adult must receive the proceeds on the child’s behalf. In most cases, this person would be the children’s legal guardian.

The child’s guardian will then determine how the money will be managed and spent, which may not align with your wishes.

If you haven’t named a legal guardian for your kids, the court will be left to choose one after your passing, which will take time and money. Even worse, your children wouldn’t have access to the proceeds during this time.

These are just a few reasons why naming your children as beneficiaries of your life insurance isn’t a good idea, even though it might seem like one in theory. Instead, it’s wise to explore other possible courses with the help of an estate planning attorney. 

Potential Alternatives to Naming Your Kids as Life Insurance Beneficiaries

If you’ve considered naming minor children beneficiaries of your life insurance, you’ve clearly done so with the best intentions. Still, to avoid issues with your plan, it’s important to consider some alternatives. Going a different route can help ensure that your kids benefit from the proceeds without any unnecessary headaches.

First and foremost, assign an adult guardian for your children after your passing. Naming a guardian in your estate planning documents will give you peace of mind and allow you to leave specific instructions for the proceeds from your life insurance policy.

You might also consider setting up a trust for your children. A trust establishes a relationship between an overseeing trustee and your intended beneficiaries — in this case, your children.

Upon your passing, the money from your policy would go into the trust, and the trustee would hold the funds and disburse them when and how your instructions state.

Taking the time to create a well-thought-out plan for your life insurance proceeds can help ensure that your final wishes are honored and your childrens’ futures are protected.

Discuss Life Insurance Beneficiary Options With an Estate Planning Attorney

An estate planning attorney can help you better understand beneficiary rights and determine the best way to make sure your kids receive the payout from your life insurance policy when the time comes.

OC Wills & Trusts proudly serves clients in Orange County, California, and surrounding areas. Contact us today to schedule a consultation with our estate planning professionals.

Brian Chew, the managing partner of OC Wills & Trust Attorneys, has extensive experience in the areas of estate planning, asset protection planning, business succession planning, long-term care planning, and veterans’ benefits. By devoting his practice to estate planning matters, he has founded a firm that strives to provide exceptional service to their clients by working closely with individuals and their families to create comprehensive and customized estate plans. For the past twenty five years, Brian has served thousands of clients in the matters of estate planning, wills and trusts. If you have any questions about this article, you can reach Brian Chew here.