Many people buy life insurance to provide for a spouse and children. But what happens if your death arrives while your children are still minors? In that case, the life insurance company can not pay benefits until the court appoints a guardian for your minor children. It can be a lengthy process that requires legal fees and court costs. Similar problems can occur if your life insurance policyholder is an incapable person.
Naming a guardian under the Uniform Transfers to Minors Act (UTMA)
One solution if your beneficiaries are minors is to name an adult you know and trust as a guardian for your life insurance death benefits under the Uniform Transfers to Benefits Act. minors (UTMA). Our experienced agent can help you name a guardian and set up a UTMA account. With these measures in place, if you were to pass away when your children are minors, the guardian you appointed would manage the income from your life insurance until your children reach legal age, at which point they will receive the remaining funds. [1
A trust can contain money and property for your beneficiaries, and it offers more flexibility than a UTMA account. It can be used to appoint a manager to monitor your life insurance funds and other assets and to dictate how you want these funds to be used and your assets managed. When you buy a life insurance policy, instead of naming your children as your beneficiaries, you can name a trust and a trustee.
The legal age for adulthood is 18 or 21, depending on the state. If you have a significant life insurance policy, you may not want your children to receive the large lump sum at such an early age, when they lack experience in managing money. This problem can be solved by creating a confidence to receive death benefits from your life insurance. A trust can be set up to provide your children, including their college education, and to distribute the remaining funds to them when they reach a certain age, such as 25 or 30.
Your trust may be revoked or irrevocable. If it can be revoked, you may make changes or terminate the trust during your lifetime. If it is irrevocable, it can help protect your heirs from property taxes. In general, federal property taxes are just a problem for good housing with very high value.
Trust in Disability Benefits with Special Needs
If your child or another life insurance recipient is disabled, it may be your best option to establish a trust for special needs. Disabled people may need extra financial support throughout their lives. In order to receive support from the authorities, people with disabilities are limited to the number of assets they can have in their own names. A trust with special needs can keep your life insurance income for a disabled beneficiary without disqualifying that person for assistance from federal and state programs such as supplementary income or Medicaid.