Naming your minor child as the beneficiary of your life insurance policy is a mistake. State law will prohibit your minor child from taking the money directly. A probate case must be opened to appoint a guardian to take possession of the funds and manage them for the benefit of your child. The probate proceedings will incur expenses that will be deducted from the funds and, if a corporate guardian is appointed, such as a bank, additional fees may be incurred for as long as the guardianship lasts. You can avoid such problems by setting up a trust for your minor child. (See Reference 1 [Life Insurance] and Reference 2 [section 10])
Video of the Day
Choose someone you know and trust to be appointed trustee. Because the trustee is responsible to manage the life insurance funds until your child is an adult, you must carefully select the trustee to ensure he will carry out your wishes for your child's financial well-being.
Consult with an estate planning attorney regarding the preparation of a trust for your child. Inform the attorney of your intention to use life insurance proceeds to fund the trust, the name of the trustee and any other specific information regarding your intention for use of the proceeds, such as using it for your child's college education.
Review the trust document prepared by your attorney to ensure it represents your wishes. Sign and date the trust as indicated by your attorney.
Purchase a life insurance policy appropriate for the needs of the trust you set up. Be sure to identify as the beneficiary of the policy the trustee named in your trust. The appropriate designation will be similar to the following "John Smith, trustee of minor child's trust" with the specific information taken from the name of your trust and trustee's name.