- 2,960
Could I get some clarity on what happens when a child is the beneficiary. What happens to the money. Will the child eventually get it?
Child Beneficiary
- Thread starter smokin goose
- Start date
- 1,953
Child will get it at 18. May have to go to court to get guardianship. Some consider making trust the beneficiary and make payout from there. Of course a person should consult with an Attorney as to the best way to distribute funds when a minor is involved..
Something else to consider is if a person names a beneficiary to an adult to care for a minor you have to consider the debts of the named beneficiary. If money goes into a personal account and debtors find out it's there can some of those funds meant for the minor be seized from the beneficiary's account to pay off potential debts?
As I mentioned speak with an Attorney when considering funds meant for a minor.
Something else to consider is if a person names a beneficiary to an adult to care for a minor you have to consider the debts of the named beneficiary. If money goes into a personal account and debtors find out it's there can some of those funds meant for the minor be seized from the beneficiary's account to pay off potential debts?
As I mentioned speak with an Attorney when considering funds meant for a minor.
- 24,979
Maybe not. Let's say baby mama dies and baby daddy is awarded full custody and control. He then could control the money.
Insurance companies just write a check to whoever is the responsible party. What they do with it is someone else's responsibility.
Call one of your company's claims department and ask them.
Lee
Bottom line is who does the policyowner trust to take care of the money before the child turns 18?
For the least amount of supervision, the proceeds can be left to another family member with the instructions to give it to the minor at a later date. As others have mentioned, this can be a very bad. Not only are the proceeds then subject to that person's creditors, but the minor would probably have no legal recourse if the funds are misspent. But that person has discretion to hold the proceeds past age 18 if necessary.
The most amount of supervision would be to name the minor as the beneficiary directly. If it is over $10,000 (varies by state), a court appointed guardian will need to be appointed, the guardian would need to obtain a surety bond, and the court would require annual accountings by the guardian. The proceeds can only be accessed upon court approval. The minor gets the funds at 18.
A UTMA custodian for the minor as beneficiary is another option. You can specify that the proceeds are the be held up to age 25. But choose the custodian carefully. The proceeds will be protected from the claims of creditors, but if the custodian decides to use the money for himself, then the minor can sue the custodian. Not much of a remedy if the custodian is judgment proof.
A trust is another option, but again you have to trust the trustee. Testamentary trusts have court supervision, so that may offer protections similar to a guardianship.
The final option is to specify that the proceeds should remain on deposit with the insurer (proceeds at interest settlement option). This locks down the proceeds, but the minor can get them at 18.
If a child is named as the beneficiary and the insurance company turns the proceeds over to a parent, and the parent then goes out and blows the proceeds, the minor can sue the insurance company once the minor turns 18. That's why insurance companies typically require a court appointed guardian in order to pay the proceeds. Believe it or not, but parents do not have the authority to claim insurance proceeds on behalf of their children (except in limited amounts under the UTMA -- typically $10,000 or less).
For the least amount of supervision, the proceeds can be left to another family member with the instructions to give it to the minor at a later date. As others have mentioned, this can be a very bad. Not only are the proceeds then subject to that person's creditors, but the minor would probably have no legal recourse if the funds are misspent. But that person has discretion to hold the proceeds past age 18 if necessary.
The most amount of supervision would be to name the minor as the beneficiary directly. If it is over $10,000 (varies by state), a court appointed guardian will need to be appointed, the guardian would need to obtain a surety bond, and the court would require annual accountings by the guardian. The proceeds can only be accessed upon court approval. The minor gets the funds at 18.
A UTMA custodian for the minor as beneficiary is another option. You can specify that the proceeds are the be held up to age 25. But choose the custodian carefully. The proceeds will be protected from the claims of creditors, but if the custodian decides to use the money for himself, then the minor can sue the custodian. Not much of a remedy if the custodian is judgment proof.
A trust is another option, but again you have to trust the trustee. Testamentary trusts have court supervision, so that may offer protections similar to a guardianship.
The final option is to specify that the proceeds should remain on deposit with the insurer (proceeds at interest settlement option). This locks down the proceeds, but the minor can get them at 18.
If a child is named as the beneficiary and the insurance company turns the proceeds over to a parent, and the parent then goes out and blows the proceeds, the minor can sue the insurance company once the minor turns 18. That's why insurance companies typically require a court appointed guardian in order to pay the proceeds. Believe it or not, but parents do not have the authority to claim insurance proceeds on behalf of their children (except in limited amounts under the UTMA -- typically $10,000 or less).
It works a little different than that. If the child is named the beneficiary, the insurance company will not release funds to a guardian without a court order.
This means that if the guardian wasn't a beneficiary or co-trustee of a testamentary trust for the child, the guardian would have to make account of every dime spent for the benefit of the child and then petition the court for reimbursement from the insurance company.
- Thread starter
- #6
- 2,960
Wow. Lots of options here. Thanks for the info, but I'm even more confused now.
So for a divorced couple and the insured doesn't want the other parent to get the money then a trust would be the best option?
A married couple that names children as contingents. The money would go to the court appointed guardian?
So for a divorced couple and the insured doesn't want the other parent to get the money then a trust would be the best option?
A married couple that names children as contingents. The money would go to the court appointed guardian?
I don't see any parent naming a child as beneficiary when the spouse is living.
- Thread starter
- #8
- 2,960
As a contingent. Should the couple die together in say a car accident.
If the children are contingent, the guardians will have to deal with what I posted earlier.
Either establish a testamentary trust (not a big deal, added to the will) with the guardian named as co-trustee along with a bank trustee perhaps. Parents set the discretionary powers given to the trustee.
Or... if the parents trust the guardians to do the right thing, just name them as contingent. this isn't fool-proof because the guardians could still use the money in a way the parents wouldn't have wanted. Also, the proceeds will become assets of the guardians and exposed to suit and creditors if something bad happens.
- 24,979
I have asked the question from a number of claims companies. I used responsible party as a catch all. To many it's and what abouts. What if the child goes to baby daddy who had equal custody? ? Or as goose ask was the contingent? The court would name the responsible party. But the insurance company isn't going to want to get involved with anything to do with a trust or how the monies are spent once the check is cut.
I have seen children not only as contingents but say Co-primaries and primaries.
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Second. I have seen divorce of the guardian split the proceeds.
