Thinking of naming your minor child as a beneficiary on your life insurance policy?
Are you a parent? Are you purchasing life insurance and thinking of naming your child as the beneficiary? Or, do you already have life insurance and named your child as a beneficiary?
As parents, we want to protect our children's future. We often think naming our children as beneficiaries will protect them. However, there may be unexpected hurtles, such as the possibility of dying before your children reaches 18 years old.
If you die before your child turns 18, most states will not allow your child to claim the life insurance money. Under the law, any child under 18 years old is not old enough to handle their own money. If you named your child and you died before they turn 18 years old, the following could happen:
Your family will have to go to court and ask the court to name a conservator. Conservatorship come with court monitoring that can require additional time and legal knowledge, including yearly financial reporting. Your child will not have access to the money unless the court releases it. Depending on the conservator, your child’s money could be used to pay the named conservator a fee.
Second, the court may put the life insurance money into a protective account and restrict access to the funds. Your child will not have access to the money and the account will be supervised and monitored closely by the court. When your child turns 18 years old your child may then petition the court to release the money. This option is easier than a conservatorship. However, your family may not have a choice in the type of account the money is deposited in and your child will not have access to the money until your child is 18.
With either option, the courts will not take any additional action to protect the money after your child turns 18. At 18, the court will stop monitoring the account and your child may withdraw all the funds.
To protect your child’s interest in the long-term, please contact me to discuss estate planning options that are available to you.