Insurance Agent Forum

[JSF]

I have a question for the life gurus: On a life insurance policy, how does one limit the death benefit proceeds until a child reaches the age of 25?

Can it be done on the policy itself, or through a trust, or with a will, or what? What is the best way? What do YOU do?

For example, the parent has a life insurance policy with the child as beneficiary. If the parent dies, they don't want the child to receive the proceeds until the child is 25 years of age.

Another related (or perhaps the same) question is, how is this handled for minor children under 18 or 21. Do most insurance companies pay proceeds to minors? If so, how do you best circumvent that so they don't receive the funds until a certain age?

Thanks in advance for your replies!

[Winter]

In general, it becomes an estate planning issue. The death benefit is paid to the parents estate rather than the child and then their will, trust, other estate plan controls how and when funds transfer.

Winter

Originally Posted by JSF

I have a question for the life gurus: On a life insurance policy, how does one limit the death benefit proceeds until a child reaches the age of 25?

Can it be done on the policy itself, or through a trust, or with a will, or what? What is the best way? What do YOU do?

For example, the parent has a life insurance policy with the child as beneficiary. If the parent dies, they don't want the child to receive the proceeds until the child is 25 years of age.

Another related (or perhaps the same) question is, how is this handled for minor children under 18 or 21. Do most insurance companies pay proceeds to minors? If so, how do you best circumvent that so they don't receive the funds until a certain age?

Thanks in advance for your replies!

[bluemarlin08]

Typically, a testamentary trust is used to accomplish these goals.

[Newby]

Originally Posted by JSF

I have a question for the life gurus: On a life insurance policy, how does one limit the death benefit proceeds until a child reaches the age of 25?

Can it be done on the policy itself, or through a trust, or with a will, or what? What is the best way? What do YOU do?

For example, the parent has a life insurance policy with the child as beneficiary. If the parent dies, they don't want the child to receive the proceeds until the child is 25 years of age.

Another related (or perhaps the same) question is, how is this handled for minor children under 18 or 21. Do most insurance companies pay proceeds to minors? If so, how do you best circumvent that so they don't receive the funds until a certain age?

Thanks in advance for your replies!

At a minimum they need a will to establish who they want to raise their kids.

If they have someone they trust with their kids, shouldn't they also trust them with the kid's money as long as they make it very clear what the money is for.

Then they should also make the adult the beneficiary of a term life policy (temporary need) to financially assist with the raising of the kids.

Beyond that, they should involve an attorney.

[bluemarlin08]

I REALLY don't like to have the guardians of one's children also be the guardian of the money. I can tell you some horror stories regarding this arrangement. One of the most trusted estate law firms in our town, I was having lunch with their 3 partmers and we all came to the same conclusion, non corporate trustees are a potential danger to the childrens inheritance. The problem is a non corporate trustee doesn't have to report to anyone.

[Newby]

Originally Posted by bluemarlin08

I REALLY don't like to have the guardians of one's children also be the guardian of the money. I can tell you some horror stories regarding this arrangement. One of the most trusted estate law firms in our town, I was having lunch with their 3 partmers and we all came to the same conclusion, non corporate trustees are a potential danger to the childrens inheritance. The problem is a non corporate trustee doesn't have to report to anyone.

You're probably right.

My point is that if you appoint someone to raise your kids in the event of your death but you don't leave any money to do it with, you are asking them to make two huge sacrifices.

A trustee to manage the money would be a better option provided you trust the trustee of course.

[Cornelius]

There's also the consideration of desiginating a beneficiary for the minor and they
Have potential personal debt issues. With legal issues it's just best to consult with an Attorney.

[Mr. Bill]

Originally Posted by bluemarlin08

I REALLY don't like to have the guardians of one's children also be the guardian of the money. I can tell you some horror stories regarding this arrangement. One of the most trusted estate law firms in our town, I was having lunch with their 3 partmers and we all came to the same conclusion, non corporate trustees are a potential danger to the childrens inheritance. The problem is a non corporate trustee doesn't have to report to anyone.

Very true, and you have to have an attorney who really knows what they're doing. Years ago there were stories about "standard" trust language that required a certain bank's trust department to manage the assets....very difficult, if not impossible to unravel.

[tryan326]

I'm not sure if all companies do this...but I have heard of some holding the money in a saving account or trust fund until the child turns 18 if they are listed as the beneficiary. I don't believe the insurance co can just pay that money to the estate when the beneficiary is still living regardless of age.

I think to do something that would hold the money until age 25 the DB would have to be payable to a trust setup by the insured and they would have to list all the provisions in a living trust or something similar. However if the insurance is listed in the insureds will or trust I believe it may become a matter of the estate and therefore become taxable. But don't quote me on this. It may be a good idea to contact a few carriers and see if they know how this can be done. I usually fall asleep during the Estate Planning portion of CE. So I could be wrong.
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[tryan326]

I also think some companies also offer something where you can have the DB paid partially in a lump sum and the rest paid out in installments over a period of years. I forget what this is called though.