Saturday, June 29, 2013

Kids as Direct Beneficiaries! Is not a good Idea!

 When you buy a life insurance policy it is usually to protect and provide for your family after you die. So it seems to make sense to designate your children as beneficiaries , but this can have complications if you were to die while your children are still minors.

For the protection of minor children they cannot receive or control proceeds from assets until the age of 18 in most states. In such cases insurance companies can keep the funds until they reach 18. Eventually they will get the money, but do you know how a 18 year old would handle all that money? This is not how people intend for their children to benefit from life insurance!

So if not children as beneficiaries then what about the next most popular choice a Guardian for your minor children? This to can be a bad idea as here you are creating a moral obligation that the Guardian will use all the funds for the benefit of your children. Another problem that can be created by doing this is what if this person is incompetent at the time of your death ?

On the other hand if you create a Revocable Trust you can control when your children receive their inheritance. The insured establishes the Trust, chooses a Trustee and dictates under what terms the assets in the trust can be used therefore insuring the proceeds from a life insurance policy can be used for the benefit of your minor children.

You should always think twice before naming beneficiaries on your assets , if you have already don’t worry it is an easy fix! Do it right create a personalized Revocable Trust this will allow you to pass your financial assets to your family in the way that you intended and help you preserve your family values and family legacy.

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