Designating Beneficiaries

by Sheryll Bonilla, Esq.

If you’re a grandparent with a life insurance policy who wants to leave the money to your grandchildren, consider using a trust.

If you name as beneficiaries the grandchildren who are already born, you may leave out grandchildren who are born later.

You might intend to leave the same amount of money to each of your grandchildren, but if you didn’t designate them on the policy, only the named ones will get your policy benefits and not the later-born grandchildren who are not named on the policy.

Create a trust for your family. You can direct that grandchildren who are born after you create the trust shall also be beneficiaries, in addition to the living ones who are named.

In your trust, you will name a successor trustee (the one who will manage the assets after you) who will collect your assets after you pass and hold them, and manage them for your family members.

In your trust, you can direct your trustee to distribute your property equally among your grandchildren (or in whatever proportions you want) or to hold it until they are old enough to be given the money.

Children cannot own money until they reach the age of 18. In your trust, you can name a higher age, such as “25” or a condition “after graduating from college”.

After creating your trust, give your life insurance company a copy of your short form trust and ask them to name your trust as the beneficiary of your policy.

After your death, your successor trustee will contact the life insurance company to collect the policy proceeds.

The trustee will either distribute the funds if the grandchildren are legally able to receive the funds or place it in an account to hold until the children are old enough to be given the money.

If you do not have a trust and simply named the grandchildren as beneficiaries, those grandchildren you named to get your life insurance benefits have to be 18 years old or older to be given a check for their share of the policy.

If they are not 18 when they die, the life insurance companies will not pay for those children. The company will require a court to appoint a conservator who has the authority to receive the money on behalf of the child beneficiary.

That means the grandchildren’s parents will have to start conservatorship cases in the probate court and ask to be appointed as conservators to collect the policy money.

Each child must have her or his case, so the costs can add up quickly if multiple grandchildren receive your policy proceeds.

Using a trust for life insurance avoids this thousands-of-dollars expense.

The petition for appointment as conservator has to give the court a proposed budget and schedule of assets.

Documents in the case are public records, so what you own and who you give it to is open information to persons who look at your case.

You can use a trust for other assets, too, so that someone can hold and manage the assets for your grandchildren until they are old enough to inherit from you.

Again, the trust preserves your privacy by avoiding having to go to court because court documents are public records.

Don’t use a trust for anything related to retirement – annuities, IRAs, 401(k), 403(a), 403(b), SEPs, and the like.

Retirement accounts have to have human beings named as the beneficiaries.

The penalties for mistakenly naming a trust as beneficiary are too high – 39.6% loss, with no hope of getting any of it back.