Beneficiaries Aren’t For Kids
At the age of eleven, the great composer Wolfgang Mozart wrote his first full-length opera. But if you had tried to make him a policy beneficiary when he was that young in any state today, he would be deemed legally incompetent.
It doesn’t matter how enlightened or precocious your child, the law doesn’t let a carrier pay a death benefit to a minor.
If you do try and then die, a long, drawn-out court proceeding will determine who should manage the funds until the child’s age of legal competency is reached.
It’s just as well. How many undirected teens might see even a small benefit (say $25,000 or $50,000) as nothing more than an opportunity for a weekend at the beach with friends?
But there is an easy solution! All states have in force a Uniform Transfer to Minors Act (UTMA), or something similar.
In a nutshell:
- A custodian is appointed to manage the death proceeds until the minor’s legal majority. Successor custodians can also be named.
- The state’s law safeguards the child’s interests by dictating the responsibilities and the powers of the custodian concerning the funds. Consider the arrangement an economical default trust, avoiding the cost and management of a full-blown, free-standing trust.
- The beneficiary wording is uncomplicated but must conform to the state’s statute.
- The only downside is that the custodianship unavoidably ends at a given age of the child (21 in most states), which may be earlier than desired.
There is a bit of effort involved for an insurance advisor. The correct wording for UTMA beneficiary designations varies from state to state, and from carrier to carrier. Length of the designation may make an addendum necessary to the policy application.
But the sales assistance at CPS Insurance saves you any effort and assures the directions for your client’s death benefit are correct. Remember: the most important section on any application is the beneficiary designation!
Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com, anytime minors are involved in your client’s insurance planning, or if you have any questions drafting a policy’s beneficiary designation.