There’s no question that it can be uncomfortable to consider the prospect of your untimely passing. In fact, it’s this discomfort that leads so many people to postpone or even avoid estate planning altogether.
As we’ve discussed on our blog, there are a multitude of reasons why this can prove to be a huge mistake from both a legal and a financial perspective. It’s also important to understand, however, that failing to execute an estate plan isn’t just the only mistake that people can make in this area.
By way of illustration, consider the matter of life insurance, which many people — especially parents with minor children — purchase as a means of securing the financial futures of their loved ones.
The mistake that many people fall victim to occurs after the coverage has already been secured and it’s time to name the beneficiary. Specifically, many parents with minor children will automatically name their young sons and daughters as the beneficiaries of their life insurance policies.
This can prove to be highly problematic down the road, however, as life insurance companies will not pay the proceeds of a policy directly to a minor and the matter will need to be resolved in court. Here, a guardian will be appointed to handle the money until the child reaches an age designated by the law of their home state — typically 18.
As you can imagine, this can prove to not only be time-consuming and expensive, but also contrary to the original intent of the parent.
What then can a parent with minor children do concerning life insurance?
Legal experts indicate that they typically have three viable options:
- Name a trustworthy adult as the beneficiary.
- Appoint an adult custodian under the California Uniform Transfers to Minors Act.
- Establish a trust to help the child and name this trust as the beneficiary of the life insurance policy.
To learn more about your options as they relate to life insurance and estate planning, consider speaking with an experienced legal professional.
Source: Life Health Pro, “10 ways to screw up when picking life insurance beneficiaries,” Barbara Marquand, Feb. 19, 2015