Over the years, I have had heard from several people that they have named their children as primary or secondary beneficiaries of their life insurance policy benefits. That sounded fine until they disclosed that their children were minors. While there is typically no issue with naming an adult as a beneficiary under a policy (depending on age and capacity), naming a minor as a beneficiary can be extremely problematic. Naming a minor as a beneficiary can result in the need for a court appointed guardian. It will also have the unintended consequence of requiring an outright distribution of the proceeds when a child attains the age of 18 years.

The use of like insurance can be important in providing funds for the cost of upbringing on one’s child, including general living expenses, education, college expenses, and the like. If not properly controlled, appropriate use of the funds may not take place. So how should this be handled? A Trust should be created that will be the recipient of the insurance proceeds. A Trustee should be designated who will be responsible for the proper handling and distribution of the monies (typically, the Trustee is also the guardian of the child). The Trust can detail how the monies will be used and will typically contain “sprinkling” provisions that will detail when and how outright payments will be made to the child. The term of the Trust can extend well past the child reaching the age of 18.

The bottom line is making a child the beneficiary under a life insurance policy can be a big mistake. It is important to seek legal advise for the preparation of a Trust appropriate to the circumstances.

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