For many policyholders, naming a child or grandchild as the beneficiary of a life insurance policy or annuity feels like a natural way to protect the next generation. But if benefits become payable while that beneficiary is still a minor, the process can become more complicated if the appropriate arrangements are not already in place.
What happens when the beneficiary is still a minor?
Because a minor cannot receive and manage proceeds directly, additional steps may be required before the money can be paid or managed on the child’s behalf. It’s also important to understand that a surviving parent or guardian responsible for a child’s personal care may not automatically have authority to manage the child’s financial assets.
Depending on state law, separate financial authority—such as a guardian or conservator of the child’s estate—may be required. Without the appropriate arrangement, establishing that authority could require additional documentation or court proceedings, adding time and expense when a family is already dealing with a loss. Requirements vary significantly by state, including rules governing guardianship, custodial arrangements and when a minor can receive property.
Look beyond the primary beneficiary
Minor beneficiaries aren’t always obvious. A common designation is a spouse as primary beneficiary and children as contingent beneficiaries. If the primary beneficiary is no longer living when the benefit becomes payable, the proceeds could go to children who are still minors.
You should therefore review both primary and contingent beneficiaries and ask what the policyholder would want to happen if benefits became payable today.
What if the child lives outside the United States?
This deserves additional attention. When a minor beneficiary lives in another country, questions may arise about which laws apply, who has legal authority to act for the child, and whether foreign guardianship or other documents establish sufficient authority to receive and manage the proceeds.
Additional documentation, verification, or review may be necessary before benefits can be paid. National Life must receive required claim documentation and make death-benefit payments in accordance with applicable laws and regulations. Identifying a beneficiary’s foreign residence before a claim occurs gives the policyholder an opportunity to consider whether the designation will accomplish what they intend.
Planning ahead: What agents can help clients consider.
When you see a minor listed as a primary or contingent beneficiary, use it as an opportunity to start a conversation. Depending on the family’s circumstances and applicable law, options may include:
- A Uniform Transfers to Minors Act custodianship. When permitted, an adult custodian can manage the proceeds for the child’s benefit until the child becomes entitled to the property under applicable law. UTMA rules and ages vary by state.
- A trust. If the client already has a trust, ask whether the beneficiary designation has been coordinated with it. For clients who want greater control over how and when proceeds are used for a child, a trust may be an option to explore.
- Appropriate financial authority. Help clients understand that the person caring for their child may not automatically be authorized to manage the child’s money.
- A conversation with National Life. Help policyholders contact National Life to understand beneficiary-designation options, forms, and company requirements, particularly when a minor lives outside the United States. National Life can explain its processes and requirements but cannot provide legal or tax advice.
A few questions can get the conversation started: Who would you want to manage this money for your child? Is the child a primary or contingent beneficiary? Does the child live outside the United States? Do you already have a trust or custodial arrangement?
The goal isn’t to discourage clients from naming children or grandchildren as beneficiaries. It’s to help them plan for more than who receives the benefit by considering who will manage it, under what authority and when the child can receive it. Addressing those questions today may help reduce complications for the family when the benefit is needed most.
The companies of National Life Group and their representatives do not offer tax or legal advice.The use of trusts involves complex tax rules and regulations. Have clients consider enlisting the counsel of an estate planning professional and their legal and tax advisors prior to implementing such sophisticated strategies. TC9113384(0926)1
