In a general scenario, the person who is the breadwinner of the family is insured and the other spouse is named the beneficiary. Therefore, if an untimely misfortune befalls the family, the other parent will look after the children and manage the finances for them. However, life is not that simple and often works in mysterious ways. Therefore, a situation might arise where both the parents die a sudden death.
Guardians as Beneficiaries
If both the parents are dead, the next logical choice for the beneficiary is the children. Yet, there are several problems with naming the children as beneficiaries. For example, if the children are under 18, they will need a guardian to manage their insurance money. The insurance policies give the right to the parents to name a beneficiary. However, at the age of 18, the children get the money and many parents feel uncomfortable with the idea of handing a huge sum of money to their children when they are so young.
Crafting a Will
Since the parents want the money to be managed for their children, they need to establish a trust. The best way to do that is to inoculate it in the will. Such a will would clearly indicate that, in the case where both parents are dead, their estate assets and life insurance should be managed to benefit the children. The trustee could be a relative or a bank and will have the right to distribute funds for child’s support, health, and education.
Moreover, the trustee would be distributing the money at different age intervals of the children. For example, a quarter of the sum of money will be given when the child reaches the 21st year, a half at 25, and the remaining after 30. The plan could vary, but the idea is to manage the money until the child is mature enough to make wise decisions on their own.
There are two steps that should be carried out if a successful plan is to be implemented. First of all, the parents should draft a will that would have such provisions as mentioned above. Secondly, as the will is in place, a trustee must be named who will act as a contingent beneficiary for the insurance money.
Uniform Transfers to Minor Act
Another way to deal with the situation is to direct the money for a minor under custodianship as per the Uniform Transfers to Minors Act. This can be extended until the person reaches the age of 25 in the case of the death of the parents. However, it needs to end when they reach the age of 21 if the parents are alive.