Many parents naturally want their life insurance proceeds to go directly to their children. Naming a minor as the beneficiary may seem like the most direct way to provide financial support in the event of your death. However, what feels like a loving decision can become complicated once the legal and administrative realities set in.
Courts do not allow children to directly receive life insurance proceeds. That means even if you name your child as the beneficiary, those funds will be locked up until a court determines who should manage the money. Without proper planning, this can cause delays, extra costs, and confusion at the worst possible time.
Understanding both the advantages and the unintended consequences of naming a minor as a beneficiary can help you protect your child’s financial future more effectively. If you need a New York life insurance denial attorney call us.
Why Parents Choose to Name Minors as Beneficiaries
Despite the risks, some parents still list their children as beneficiaries because they want the funds to go directly to them. In some cases, they simply are not aware of the complications that can follow.
Access to Funds for the Child's Future
Once the child reaches the legal age of majority, they will receive full control of the life insurance proceeds. This money can provide financial stability for college, housing, healthcare, or general living expenses.
Example: A mother with no extended family wanted her teenage son to receive her life insurance benefit if anything happened to her. She named him directly as the beneficiary, hoping it would help him attend college and avoid student loans.
Avoiding Dependence on Other Adults
Parents sometimes name a minor child as the beneficiary to prevent funds from going to estranged relatives or ex-spouses. They hope this approach ensures the money is not misused.
Example: A father named his eight year old daughter as the sole beneficiary, fearing that if he named his former spouse, she would use the money for personal gain rather than for their child.
These examples show why some parents lean toward direct designation. But they also highlight why this choice may lead to legal issues that undermine those same intentions.
What Can Go Wrong When a Minor Is Named
Immediate Access Is Denied
Minors cannot legally receive a life insurance payout. If you name a child directly, the court must appoint a guardian or conservator to manage the funds until your child turns eighteen or twenty one, depending on state law.
Example: A father died suddenly, leaving his twelve year old son as the named beneficiary. Because no guardian was appointed in the policy or the will, the court had to intervene. It took nearly eight months for a guardian to be appointed, and legal fees reduced the payout.
Control Is Handed to the Court
When no guardian is named in advance, the court selects someone to manage the funds. That person may not be the one you would have chosen, and their financial decisions might not align with your values.
Example: A life insurance policy listed a seven year old as the primary beneficiary. The court appointed the child's uncle—someone the deceased had not spoken to in years—as financial guardian. The uncle controlled the funds until the child turned eighteen.
The Child May Inherit Too Much Too Soon
At the legal age of majority, your child will receive the full benefit in a lump sum. There are no limits on how the money is used, which may be risky for an eighteen year old with no financial experience.
Example: A teenager inherited over two hundred thousand dollars at age eighteen. Within a year, most of the money had been spent on a car, travel, and other nonessential expenses. The money intended for college and long-term support was gone.
Smarter Alternatives That Preserve Your Intentions
Rather than naming a minor directly, you can achieve better results through planning tools that keep control in trusted hands until your child is ready.
Create a Living Trust
A living trust can be named as the life insurance beneficiary. You appoint a trustee who manages the funds according to instructions you create. The money can be released at milestones you define, such as graduation or reaching a certain age.
Example: A mother created a trust naming her sister as trustee, with instructions to use the life insurance payout for her daughter’s education and living expenses until she turned twenty five. The daughter received guidance and financial stability without early access to the full amount.
Establish a UTMA Account
A Uniform Transfers to Minors Act account allows you to name a custodian to manage the money until the child reaches adulthood. This approach offers more flexibility than court-appointed guardianship, though it still gives the child full access at the age of majority.
Example: A father named his brother as custodian of a UTMA account. After his death, the brother used the life insurance proceeds to pay for the child’s medical care and private school tuition, fulfilling the father’s original wishes.
Name an Adult with Instructions
You can name a trusted adult, such as a relative or friend, as the policy beneficiary with verbal or written instructions on how the money should be used for your child. While not legally binding, this method is sometimes used in blended family situations.
Example: A woman named her best friend as beneficiary with the understanding that the money would be used for her son’s care. However, when she passed away, the friend used part of the money for unrelated expenses. The son received only a portion of what was intended for him.
This example illustrates the risk of relying solely on personal promises without legal safeguards.