Avoid This Common Beneficiary Mistake – Part Two

Another common beneficiary mistake is to name minor children as beneficiaries. While parents should purchase life insurance to provide income to minor children upon death, naming them directly poses problems. Minor children require a guardian to be appointed by a court to administer any funds in their name. Even if children could legally handle their own finances, would you trust your 10-year-old with a million dollars? You probably don’t trust them with $10. Many will spend the money on candy, potato chips, soft drinks and toys.

Even if you name a guardian in your will, the will still has to go through probate which will take an average of 6-9 months for completion. The guardian must be willing to serve and if not dictated by your will, one will be appointed by the court. The court cannot read your mind. There is no guarantee their choice will be your choice.

What’s the solution? We want the money to be there for the benefit of the children and we know which responsible adult we would like to administer the funds. The simple solution is to name another adult you trust. A grandparent, aunt or uncle of your child all make great candidates. Make sure this person knows they are listed as a beneficiary on your policy and that the money is for your child’s benefit. They should also be designated as guardians in your will. If you would like more concrete assurances that the money will be distributed as intended, have an attorney draw up a trust. The trust will dictate the distribution of funds as well as the trustee/guardian.