Naming a beneficiary of your life insurance policy is not as easy as it seems. You may want to give this “easy” task some extra thought.
One of the biggest mistakes is naming a minor as beneficiary. After all, you want your kids to get the insurance money don’t you? However, what you may not realize is that doing so can create legal and practical problems. For example, I have a $1 million life insurance policy. However, my children are minors. If my wife and I pass away in a common accident, do you really think our life insurance company is going to write a check out to my kids? Even if the insurance company would write checks to minors, do I really want my kids getting $500,000 each at such a young age with no strings attached?
So what is going to happen? The life insurance company will typically offer two choices. First, the child can wait until he/she is 18 years of age (believe it or not, that is considered adulthood) and then get a check for the full amount. Getting large amounts of money at such young ages can easily lead to a squandering of those assets. Even if your child is “responsible,” he or she may be subjected to pressures from their peers. Think about it. Do you want your kids getting such large sums of money at such a young age?
If you have minors as beneficiaries of your life insurance policies, complications are bound to arise. Usually, getting a life insurance policy is supposed to provide your surviving loved ones with financial security and peace of mind. However, if you don’t give much thought to the beneficiary designations, you may be creating more problems than you have solved.
To help solve this problem, a living trust can be set up to receive the life insurance proceeds. In other words, your living trust becomes the beneficiary of your life insurance policy. That way, no one has to go to court and the proceeds can be paid out much quicker, thereby making the money available to the family without delay. The advantage is that you establish the trust, you select the trustees, and your outline the terms under which assets can be used and distributed from the trust. Therefore, by doing so, you’ve avoided the need for court intervention, and the money can be managed responsibly for your children.
Call or email rob@mansourlaw.com for a free audio CD entitled “Introduction to Estate Planning.” For more information, please visit www.MansourLaw.com or call 661-414-7100.