You can help a minor child by making sure the benefits from your life insurance policy go to that child. However, you have to choose a method of leaving your life insurance money so that the benefit doesn't get eaten up by administrative costs and legal wrangling in the court system. Your work life insurance policy may seem pretty straightforward, but making sure a minor child gets the money requires careful planning.
Problems With Making the Minor a Beneficiary
If you name a minor child as the beneficiary on your life insurance at work, the insurance company will not pay the benefit to the child. Instead, your next of kin must name a guardian, and the court must appoint that guardian to take care of the money until the child is 18 or 21, depending on what state you live in. There will be court costs and you run the risk of the guardian being untrustworthy or incompetent.
Naming An Adult Custodian
You can choose an adult custodian and still name a minor as the one who should receive the money. The Uniform Transfer to Minors Act allows you to do this. You have to make sure your insurance company permits this kind of transfer, and you have to name the adult custodian at the time you fill out the UTMA form with the insurance company. Also, be sure to name the minor by giving the full legal name.
Creating a Trust
You can set up a trust and name the trustee as the beneficiary. You can then name the minors and make it clear they are the ones who should receive the insurance money from the trust. You will have to designate an adult to oversee the trust, and that adult will be bound by the laws in your state regarding trusts. This method can ensure that the minor has the protection of the state, because state regulations will limit any actions the adult can take.
Updating to Add Children
You must update the information regarding who will receive your life insurance benefits as your family grows. To do this, work with your insurance company at your job, as well as any adult custodian or trustee to fill out the proper paperwork. Designate the percentage of benefits that will go to each minor. If you forget to update the information, your insurance company will have to pay the beneficiary you last indicated, and this could mean a younger minor you meant to add could be left out.
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