Minor Beneficiary

A mother holds her baby while working on a laptop.

Photo by Anastasia Shuraeva on Pexels

It can be challenging for you to determine who will be your life insurance beneficiary. Firstly, no one wants to talk about death, but choosing the correct beneficiary is a vital decision every policyholder must make. Are you aware that naming a minor beneficiary can cause problems after the insured passes away? Television, movies, and even a quick Google search will suggest naming an underage child as a beneficiary, but do not be fooled. Most financial experts tend to disagree with naming a minor as a beneficiary.

Should I name a minor as a beneficiary?

As you may already know, when a policyholder passes away, the beneficiary receives the policy death benefit from the insurance company. Most individuals choose a spouse as a beneficiary, but some people intend to name their underage children too. Legal restrictions prevent minors from receiving the death benefit. In most states, the age of majority is 18. In Alabama and Nebraska, the legal age is 19, and in Mississippi, the legal age is 21. So naming a minor beneficiary can create problems because annuity and life insurance payouts delay until a judge appoints an adult to manage the funds. In some cases, if official guardianship is declared, it can speed up the process so the guardian can manage the money until the child is of age to be legally responsible for it.

What else can I do instead of naming a minor as a beneficiary?

Instead of naming your children as beneficiaries, you can secure their financial future by establishing a trust. The insured person, who sets up a trust, is known as the grantor or settlor. You can designate the trust as a beneficiary in your life insurance policy to ensure money is spent appropriately. Some financial experts recommend creating an irrevocable life insurance trust (ILIT). This type of trust can allow individuals to guarantee their payout avoids estate taxes, and follows the requests of the insured person. Once you create an irrevocable trust, you cannot alter or undue the trust. Your choice of trustee will carry out the instructions if or when you pass away. When designating the account trustee, select someone who will carry out your wishes and not abuse their role. The trustee has all the power over the beneficiary, whether the beneficiary is a minor or an adult. Your spouse is usually the best choice because they will likely adhere to the children’s best interests. If the grantor’s spouse is the trustee and passes away at the same time or at some point afterward, then the grantor’s successor trustee would take over.

As a parent, you want the best for your children, so when making decisions be certain you appoint the best possible beneficiary, trustee, and trustee successor to protect their future. If you found this article helpful, please read about the benefits of visiting a library.

Life Insurance Questions?

We hope that this information on minor beneficiaries is useful to you.

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About Joey Hinojosa

Joey Hinojosa graduated with a bachelor's degree in broadcast journalism and a master's degree in mass communications. He began working at Empower Brokerage in early 2022 and enjoys being creative in his writing, photography, videography, and other projects.

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