Dying of leukemia, Lisa K.'s husband worked quickly to get the family's financial "ducks in a row" for the benefit of his surviving wife and children. In Lisa's case it was in not understanding the implications of the way the beneficiary designations were filled in on her husband's life insurance policy. The oversight has stuck Lisa with having to account to a court every six months, being visited by court representatives every three years and working with a guardian ad litem appointed for her children.
The insurance policy specified that the proceeds would go to Lisa and her two children 50-50. That might seem reasonable, but it creates trouble because it puts the money directly into the ownership of minors. And the courts have been diligent about protecting children from their parents.
The insurance policy specified that the proceeds would go to Lisa and her two children 50-50. That might seem reasonable, but it creates trouble because it puts the money directly into the ownership of minors. And the courts have been diligent about protecting children from their parents.
Despite the fact that her husband's will left all his assets to her and named Lisa as the children's guardian, in order to get the life insurance proceeds she had to jump through hoops. She had to produce legal papers proving that she was the legal guardian and custodian for the children. This necessitated appointment of a guardian ad litem for the children (more attorney's fees) and purchase of a bond (over $3,000) for her to handle their proceeds until they reach legal age. (The only other option was for the insurance company to pay the policy proceeds to a court, in which case she would have had to petition when each child needed funds.) Further, she is required to provide an accounting to the court at 6 months and every three years until they reach maturity -- age 19 in Alabama.
Some options to doing what Lisa did could consist of “Simply naming the spouse as the sole beneficiary of the assets and trust her to look out for the children. Or have the will include specific instructions creating trusts for each child to hold designated assets for their benefit. Then, on the beneficiary statement of the policy, pension, or IRA, simply say that the beneficiary is the trust or trusts created by those articles to the will.”
The article brings up the very important issue of picking the correct beneficiary designation that seems simple but can lead to an unpleasant outcome. Consult either with your insurance agent or an estate or trust lawyer before making these decisions.
Comment Preview