Parents often name their children as beneficiaries of life insurance. When the children are minors, a few practical questions come up.
The problem
A minor child cannot generally receive and manage a large sum of money. If a minor is named as a beneficiary with no other arrangement, the insurer may hold the funds until a court appoints someone to manage the money for the child. That can add cost and delay, and it may mean the child receives everything at the age of majority, which is not what every parent wants.
Options families look at
- Naming a trustee. Some provinces allow a policy owner to appoint a trustee for a minor beneficiary on the policy, who then manages the funds for the child. Rules differ by province, so ask your insurer how it works for you.
- A trust in the will or a separate trust. A lawyer can draft a trust that sets out who manages the money, what it can be used for and when the child receives it.
- Naming the other parent or guardian. Many families name the other parent as beneficiary, which keeps it simple while both are alive. It helps to also think about what happens if both parents die.
Guardians and wills
Insurance money is not the same as guardianship. A will is where you name a guardian for your children. The guardian, the trustee and the beneficiary may or may not be the same person.
Reviewing the plan
As children grow, the right setup changes. A plan suited to a baby may not be what you want for a teenager.
Questions to ask
- What happens if I name a minor as beneficiary and nothing else?
- Can I name a trustee on the policy, and who should it be?
- Do my will, my guardian choice and my beneficiary forms fit together?
A lawyer who practices estate law can help with the legal side.