The reason you purchase life insurance is to ensure your loved ones have the financial support needed to handle expenses they may face due to losing you. But before you name a minor as the beneficiary of a life insurance policy, you’ll want to understand the pros and cons. For instance, it’s important to note that a child, as a minor, cannot immediately make use of the death benefit. In fact, a child must reach the age of majority, which varies by state of residence, before the funds can be paid out.

If you decide to name a minor as your beneficiary, you have a few options. Instead of naming them directly on the policy, you can opt to do one of the following instead:

• Establish a Trust. With the help of an estate attorney, a trust can be established, and a child or minor may be named as the beneficiary of the life insurance policy. The trust may place stipulations on how the funds are disbursed, including the age at which your beneficiaries can be paid. This is considered the most advisable option so that your trustee abides by your intentions.
• Create an Account for the Minor Through the Uniform Transfers to Minors Act (UTMA). If a surviving parent wants to collect the life insurance proceeds on behalf of a minor, they will need to petition the court to be named the Financial Guardian. With a UTMA, money left for a minor is considered a tax-free gift and the child is the owner of the account. A custodian manages the money for the child’s best interest and until they reach the legal age in their home state (typically 18 or 21). Once the minor is of legal age, they can take control of the account. Also, if you use a UTMA, your minor’s custodian will need to provide a court document naming them the financial guardian prior to receiving a death benefit payout.

Alternatives to Naming a Minor Beneficiary

Naming a spouse or relative as the beneficiary with the understanding that the money is for the minor is also inadvisable. A named beneficiary has no legal obligation to give the funds to anyone else once they are disbursed and there is no legal recourse for the minor children if the named beneficiary depletes the funds or chooses not to give them any of the funds.

AAFMAA Is Here to Help

If you need to change the beneficiary on your AAFMAA life insurance policy, please contact Policy Services for assistance at [email protected] or call us at 800-336-4538.