Should I name my children as beneficiaries of my life insurance policy?
We never recommend naming a minor child as a beneficiary of any asset, whether it's life insurance or retirement accounts, or any other type of asset. The reason is: If you as the asset owner or account owner, pass away, and that asset or funds are payable to a minor child; that minor child legally is the owner but also legally can't be in charge of that asset on their own. So what that means is that a court would actually step in and appoint someone to be in charge of that asset until your child reached age 18 or in some cases, 21.
So what that means is that someone other than you, it's the court or a judge, who is deciding; they are saying who is in charge of an asset where they're named as a beneficiary but they're a minor. You, as part of your estate plan, can make that choice ahead of time, so you're not relying on what a judge would choose. So if you name a minor child outright as a beneficiary, we're leaving it up to chance that if something were to happen before that child reaches adulthood, then someone else, a stranger or a probate judge is deciding who is in charge of that asset, and making decisions about how to invest those funds and ultimately, how to spend those funds on your children.
But even then; even though we don't know that piece of it, and I would recommend with an estate plan that you actually cover that piece and make provisions for that. If you just leave it up to a judge to decide who is in charge until they're 18 or 21, and it's a significant amount of money; let's say it's a one million dollar life insurance policy, then you have potentially a teenager, an 18 year old, or someone who is 21 getting all of that money; hand it over to them, a check written to them with no more adult oversight. So, that might not be a good thing either that an adult so young and not quite yet mature would have that much money at their disposal, and then they might end up using it in ways that you would have never wanted, and you'd want to make sure that it was preserved for their milestones in life like a wedding or purchasing a home, or going to grad school. That kind of thing.
It's really important for us to help clients make sure that naming a minor child as a beneficiary is not the best route to go.