Avoiding Guardianship Requirements for Minor Beneficiaries in Life Insurance Policies

Ensuring Your Minor Child or Grandchild Receives Benefits Efficiently

When designating a minor, such as a minor child or minor grandchild, as the beneficiary of a life insurance policy, it’s important to consider the legal implications and potential obstacles. One significant issue is that insurance companies often require a court-appointed guardianship before releasing funds to a minor beneficiary. This can delay benefit distribution and increase expenses for the family.

To bypass the need for court guardianship, setting up a trust for the minor and naming that trust as the beneficiary of the life insurance policy is a wise strategy. A trust is a legal arrangement that holds assets on behalf of a beneficiary. It allows greater control over how and when the assets are distributed, ensuring the minor beneficiary's needs are met according to your wishes.

To start the process of setting up a trust, consult Paul Premack, an Attorney who specializes in trusts and estate planning. I can provide tailored advice and ensure all legal requirements are met. You’ll need to think about the terms under which the trust will operate. This includes:

• The age at which the beneficiary will gain control of the trust assets.

• Specific stipulations for how the funds can be used (e.g., education, health care, living expenses) while they are held in the trust.

• The appointment of a trustee (and successors) who will manage the trust until the beneficiary reaches the specified age.

After the trust document has been drafted to your specifications, and you have signed it to activate its terms, you need to contact the life insurance company. Change the beneficiary on the policy so it names the Trust and its Trustee as beneficiary instead of naming the minor directly. The insurance company will have a specific form for you to complete or will allow you to log-in to your account portal to make the changes.

When the trust becomes beneficiary, and eventually you die so that money comes into the trust, it will be used solely for that minor’s benefit as you intended. Existence of the trust:

• Avoids Court Guardianship: By naming the trust as the beneficiary, the insurance company can release funds directly to the Trustee without needing an expensive court-appointed guardian.

• Controls Fund Distribution: The trust controls how and when the funds are used, protecting the minor’s financial interests.

• Provides Legal Protection: The trust offers legal protection ensuring that the funds are managed appropriately until the beneficiary reaches any age you specify. The money does not belong to the beneficiary while in the Trust, so while it does provide specific benefits like paying college tuition, the young person cannot directly spend the money or put the money at risk from bad or immature financial decisions.

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Paul Premack is a Certified Elder Law Attorney for Wills and Trusts, Probate, and Elder Law issues. He is licensed to practice law in Texas and Washington. To contact us, visit www.Premack.com.

Column published on March 6, 2025