YOUR EIGHTEEN YEAR OLD SON’S PORSCHE

This newsletter continues our series on the six common mistakes parents make when naming guardians for their children.  MISTAKE #5.  YOU MAY NOT HAVE PROVIDED FOR SOMEONE TO TAKE CARE OF THE MONEY YOU ARE LEAVING BEHIND.

            So, having learned how to avoid the first four mistakes, you have named short term and long term guardians for your children, specified what would happen if the couple you have named to act as guardians are no longer together, prepared a confidential document excluding anyone who might challenge your decision, and have provided necessary financial resources through life insurance or other means for the guardians to properly take care of your children.  However, in so doing you named your minor children as the beneficiaries of your life insurance policy.  Uh Oh!  Big Mistake!

            Minor children are not legally permitted to receive life insurance proceeds.  Naming them as your beneficiary guarantees that court involvement will be necessary in order for someone to be appointed to safeguard this money.  The court will supervise the money only until each individual child reaches the age of eighteen (18), at which time the child receives his share of the money outright, to be used as an eighteen (18) year old sees fit, including buying an expensive automobile.

            What you must do is not only name appropriate financial guardians for the children, but you should name either those guardians or a trust as the beneficiary on the life insurance policies themselves.  For example, if you have named your spouse as the primary beneficiary on your life insurance policy and your children as the contingent beneficiaries, the contingent beneficiaries likely would need to be changed to read, for example:  “Atticus Finch as guardian for Billy Sample” or as the “trustee of the Billy Sample Trust”.  By properly naming a guardian as the beneficiary of the life insurance proceeds, you will avoid the time and expense of a court proceeding to establish a guardianship.  You also will be able to make decisions to protect against your child receiving a substantial sum of money outright at age eighteen (18), by providing specific instructions to the financial guardians.

            Check with your estate planning attorney or life insurance agent to make sure the naming of your life insurance beneficiaries is done correctly.  Honestly, what 18 year old doesn’t want a Porsche!