Every parent wants to protect and provide for their children and one of the ways to do that is with a life insurance policy. It may seem like a good idea to make minor children beneficiaries, but minors can’t receive the money directly. If there’s no surviving parent, the courts will appoint a legal guardian to administer the funds and decide how they’re spent.
Naming minor children as beneficiaries severely complicates matters at a vulnerable time for the children and it’s particularly disruptive if you’re a single parent. Appointing a legal guardian can also be an expensive process, take a considerable amount of time, and there’s no guarantee the life insurance money will be spent in the way you desire for your children.
There are fees associated with court-appointed guardianship and children have no input as to how the money is allocated or spent until they reach legal age. Instead, you might want to consider other options such as the following.
Create a Bank Account
What any parent can do under the Uniform Gifts to Minors Act is to establish an account for their child at a bank, credit union, or even a life insurance company. You’ll be able to stipulate what assets are earmarked for the children and name the individual that will be the custodian of the money and any other assets that you may leave the child. That can be a spouse, partner, or other highly-trusted individual.
Establish a Trust
When setting up a trust, you can name the trust as the beneficiary of the policy. It’s a more complex route, but spells out exactly who the trustee of the funds will be and how you want the money to be spent and managed. A living and revocable trust enables you to decide which assets are in the trust and adjust them as life changes.
Irrevocable Life Insurance Trust
This is an option that reduces estate taxes and enables more money to go to your children. It’s an alternative that should be carefully considered since it can’t be changed or adjusted at a later date without the permission of the beneficiary.
Consider all your options carefully before making a decision and consult with a financial advisor that can provide professional guidance based on your individual circumstances. The age of your children, value of the policy, and other factors will have an impact on your decision.
For more information about how The Sena Group can help you with any
of your insurance needs, please contact us at 561-391-4661.
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