Understanding Insurance Benefits for Minors
Life insurance is a vital part of family planning for every parent. In exchange for paying monthly or annual premiums, your beneficiaries receive money when you pass away. Insurance benefits to a life insurance beneficiary may range from tens of thousands to millions of dollars.
An insurance policy ensures that your minor beneficiaries have the support they need when you die. A parent may add their child as a beneficiary to their insurance policy to provide for their economic well-being. Before doing so, it’s vital to understand the legal implications of putting minor children as primary beneficiaries on your insurance policy when they are not of age.
Below, learn more about adding minor children to your life insurance and the potential consequences and legal alternatives. Then, speak to an experienced Florida estate planning lawyer at Medley Law Firm to protect your children’s financial interests. If you have questions—call (850) 607-7890 today. We always treat our valued estate planning clients the way we like to be treated.
How Old Does Your Insurance Beneficiary Have To Be?
Understanding the legal age at which people can be named life insurance beneficiaries is vital. Usually, your life insurance primary beneficiary must be at least 18 to receive money, or the child reaches adulthood. But it may be different based on your state laws.
If the life insurance beneficiaries are under 18, an adult must usually manage the life insurance benefit until the child is an adult. Thinking about guardianship issues during the estate planning process is always preferable. Otherwise, serious problems regarding the life insurance proceeds after you die may crop up for underage children to receive the benefit.
Considerations for Naming a Minor as a Life Insurance Beneficiary
Initially, putting your minor child as a beneficiary for a life insurance death benefit might seem wise, and it can be. You want to provide financial support for your child if you die. However, minors cannot legally receive life insurance benefits directly. The death benefit payout may be delayed if your child benefits from the policy. Imagine – you pass away, and the funds your child needs for their daily living expenses are unavailable until they reach adulthood!
However, there are simple and effective ways to ensure your minor beneficiary receives the financial support they need quickly from the life insurance company policy. An estate planning attorney can help you decide which option is best in your case:
Designate a Legal Guardian Family Member On The Life Insurance Policy
Many states allow you to make the child’s guardian, such as a family member, on the policy offered by the life insurance company. The guardian, such as your spouse, would be paid for the child and oversee the money until the minor becomes an adult. Designating a young adult guardian may allow you to avoid the complex legal process necessary if you name the minor as a primary beneficiary on the insurance policy.
Designating an adult guardian, including a spouse, also has downsides. First, ensure that the guardian manages money well. You also must trust that the person will act in the beneficiaries’ best interests regarding the life insurance left.
Set Up a UTMA Account
You may name your minor children as beneficiaries of your insurance policy using your state’s Uniform Transfers to Minors Act (UTMA). UTMA was established to overcome common issues associated with making a gift to a minor child. The Act provides an inexpensive and straightforward way to transfer certain assets to a minor by establishing a custodian. The UTMA may be used to do the following:
- Allow the transfer of real estate or similar assets to a minor child
- Provide control to the custodian until the minor is an adult
- Exempt certain gifts and assets from federal taxes (up to $15,000)
Using a UTMA in your situation may or may not affect the minor’s eligibility for student financial aid. As your estate planning attorney for a detailed analysis of your situation.
Name a Life Insurance Trust as a Beneficiary
Another option is to set up a life insurance trust or revocable living trust through the court to handle the assets. Then you can name the minor as the beneficiary of its assets. You can also name your living trust as the insurance policy beneficiary. The trustee you designate will manage the trust’s funds to ensure minor children receive it.
Managing Benefits for a Life Insurance Beneficiary
It’s wise to speak to an estate planning attorney today about managing life insurance benefits for your minor or other person. If you name your child as a beneficiary, the insurance provider won’t release the death benefit until the child or children are 18 or 21.
The court will name a guardian during probate without a named adult custodian. Unfortunately, this may mean that essential funds for your child may be unavailable for months or years. Thus, it’s critical to name a custodian to manage the life insurance funds until your child is an adult.
Role of the Insurance Company for a Child Life Insurance Beneficiary
The insurance company usually will not provide life insurance benefit funds to minor children. There are serious concerns about what will happen to the money when the child lacks a guardian. Comprehensive legal guidance from an estate planning attorney ensures your minor receives the money they need from your insurance policy.
Estate Planning Attorney for Child Beneficiary
Speaking to an estate planning attorney about a beneficiary designation for an insurance policy is wise. An experienced estate planning lawyer at Medley Law Firm can assist with choosing the best legal option to ensure your children receive the financial benefits they need upon your death without delay.
The attorney you hire may also offer detailed guidance about appointing a guardian or property guardian and preserving your child’s inheritance after the probate process.
Avoid These Insurance Myths
Now that you understand the options when naming a minor as your life insurance beneficiary beware of the following myths regarding life insurance. Your child may need the support provided by your life insurance and proper legal planning by your estate attorney:
- I only need insurance if I have a spouse or children. Even if you are single, a life insurance policy may be critical to cover funeral and burial expenses. Providing your loved ones with a death benefit will ensure they aren’t burdened with extra costs at the most challenging time.
- A life insurance policy costs too much: The cost of an insurance policy varies based on age, health, and amount. However, most people can choose affordable life insurance options that fit their needs. Insurance may cost less money than you think.
- My child beneficiary will have to pay income taxes on proceeds: Most death benefit proceeds from life insurance aren’t considered taxable. However, discuss your specific tax situation with your CPA or tax advisor.
- I don’t need more insurance than what my job offers. Employer-based life insurance is usually inadequate and may not cover paying off the mortgage and other large expenses. Relying only on work-based life insurance in case of a job change or layoff is also risky.
Speak to an Estate Planning Attorney Today
In summary, policy owners should proceed cautiously when naming minor or contingent beneficiaries. Problems may develop that delay the child from receiving the death benefit funds they need. Fortunately, naming a minor as a beneficiary is manageable with an experienced estate planning attorney guiding You. Estate planning needn’t be complex and challenging to understand.
The estate planning lawyers at Medley Law Firm create comprehensive but easy-to-understand estate plans for families and children. Our attorneys can assist with naming a life insurance beneficiary, mirror wills, living trusts, dealing with the insurance company, nursing home Medicaid planning, probate estates, and more.
Speak to a Florida and Alabama estate planning lawyer at Medley Law Firm today at (850) 607-7890. We treat our clients like family members and will do all we can to protect your children’s interests.