Naming a Minor as a Beneficiary: What are the Problems?

Consider some of the alternatives...

Did you know:

Naming a child or children as beneficiaries of a life or annuity policy can make the claim process very complicated upon the death of the named insured?  This is especially true if that child is a minor or under the age of majority.  A minor is not entitled to receive the gift or share of the deceased estate until they reach the age of 18 or 21, depending on state law.

Because minor children cannot directly receive the proceeds of the life or annuity policy, the named owner can designate an adult to manage the money until the minor is old enough to be responsible for it.  If an adult is not designated as the legal guardian, the insurance company would require guardianship paperwork for the estate of the minor, which could be a lengthy and costly process.

Without documentation of a guardian or conservator for the child, the funds are held in an account until the minor reaches the age of majority which, depending on the age of the child at the time of the policyholder’s death, could be several years.

What are some of the alternatives to naming a child as a beneficiary?

Below are three options available to policyholders:

• Name an adult guardian

Example: (guardian/custodian name) as custodian for (minor’s name)

• Open a Uniform Transfers to Minors Act (UTMA) account
• Establish a trust for the minor

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