Choosing a beneficiary seems pretty straight forward right?
Your beneficiary is the person or entity you elect to recieve the benefit amount. A lot of times this can be straight forward, such as a spouse or surviving child.
But what about a minor as a benificary, what if the beneficiary passes away the same time as the primary insured, what do we do then?
When it comes to naming a minor as a beneficiary, it is usually not advisable. Simply because minor children cannot recieve funds from life insurance poilcy benefits. Funds that could be used to take care of the minor until they are of age to receive the rest of the benefit. SO… what can you do?
If there is no spouse or you are divorced, instead of naming your minor child as beneficiary you can name a trusted family member such as a grandparent (has its own aspects to be aware of), a brother or a sister. This indivudal must be trusted beyond doubt, as you will be leaving the care of your childs finances in their hands.
You can name a trust as the beneficiary, in which the trustee manages it per your final instructions.
What happens if a minor is named as a benificary?
A few things can occur:
1) Court-appointed guardian or custodian – The insurance company will hold the funds until a legal guardian or custodian (under the Uniform Transfers to Minors Act, UTMA) is appointed to manage the money for the child.
2) Delay – If no guardian or trust exists, the funds can be delayed in probate court until one is assigned.
What happens to the benefit payout if the beneficiary passes away the same time as the primary insured?
This can bring a little more complication to things, but dont worry…we will break it down.
1) First off, it is highly advisable to have a “contigent” beneficiary to avoid this primarily but….
2) IF this were to occur the funds would be paid out to the deceased’s estate. (There are some underlying stipulations that can affect this such as the beneficiary passing away shortly after the primary insured which would cause the benefit to be apart of the now “deceased beneficiary’s estate)
So with all that being said, choosing a beneficiary is a bit more than most people think, and can require careful planning and execution to ensure those who need to be taken care of….. ARE
