Insurance Policies and Minor Beneficiaries

6 Jul 2023 · 1 min

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In this brief advisory, Jerry Taylor warns parents against naming a minor child directly as the beneficiary of a life‑insurance policy. He explains that insurers cannot pay benefits to minors, so a court would have to intervene, appoint a trustee, and eventually release the entire death benefit as a lump sum when the child reaches the age of majority. To avoid this uncertainty, Taylor recommends establishing a trust, naming the trust as the policy’s beneficiary, and embedding clear instructions within the trust about how much and when the child should receive distributions, whether in a single payment or staged amounts.

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Parents, this is important and a lot of people screw this up. You should never name your minor child as the beneficiary of your life insurance policies. And that's because insurance companies cannot pay benefits to a minor. So if something were to happen to you, someone would have to go to court on behalf of your child and ask a judge to create a minor's trust for your child. The judge would also have to appoint a trustee for that trust., and the decision on who that trustee is, is left up to the judge. Then when your child reaches the age of majority, which is typically 18 or 19 years of age, they would receive the entire payout of those benefits in a lump sum. Instead of leaving these decisions to some judge in the future, here's what you should do. Create a trust and make the trust the beneficiary of your life insurance policy. Then within that trust, you put directions about how much your child gets and when they get it, whether in a lump sum or in stages.