There are a lot of forms to sign when you take out a life insurance policy. One of those forms will be a beneficiary designation form. It generally contains one line for your primary beneficiary and then another one for an alternate.
While you might not think twice about putting your spouse’s name on the first line and your child as an alternate, it may not be ideal for you to do so. It may lead to problems with the handling of your estate.
Concerns that arise when listing kids as beneficiaries
As in the case with life insurance policies or retirement and investment accounts, assets with beneficiary designations generally don’t pass through the probate process. The downside to this is that your child could end up having these valuable assets transferred to them when they’re first entering adulthood. This is a realistic scenario if your spouse predeceases you and never updates your beneficiary designations after that happens.
The thought of significant funds transferring to a child at such an early age may rub some parents the wrong way. They might question whether putting a large lump-sum payment into the hands of an 18-year-old, for example, is wise.
Options exist for ensuring that your kids don’t inherit valuable assets too early
You can take measures to ensure that valuable assets are available to them once they’re more financially mature to adequately manage the funds that they receive. An attorney may advise you that funding a trust is the ideal option for doing this. Please visit our Online Estate Planning Learning Center for answers to common questions about trusts and related matters.