Life insurance for minor children: who manages the money?

Naming a child on a life insurance form raises a second question: who would manage the money if the child could not receive and manage it directly? The beneficiary designation and the legal arrangement for the funds need to work together.

A parent’s wishes should be reflected in the actual documents. Discuss those wishes with a lawyer and the insurance advisor before completing or changing the designation.

Decide what you want the money to support

Think about day-to-day care, housing, education and other priorities. Consider the responsibilities someone would take on to administer the funds over time.

Be specific about your concerns. You may want money available for ongoing care while also wanting oversight of major decisions. Those instructions need legal work to become an effective arrangement.

Discuss who receives and who manages the benefit

Where a beneficiary is a minor, a trust or trustee arrangement may be relevant. The right structure depends on the policy designation, the legal documents and applicable law.

Naming an estate can also change how proceeds are administered. It should be considered alongside the estate’s obligations and the will. Avoid assuming that one standard designation suits every family.

The Public Guardian and Trustee of British Columbia explains duties that can apply when someone acts as trustee for a young beneficiary. That responsibility involves proper administration and attention to the trust’s terms.

Keep the responsibilities clear

The person caring for a child and the person managing funds have responsibilities that should be discussed separately. Ask your lawyer how those roles would work in your plan and what happens if the first-choice person cannot act.

Think about practical matters too: willingness, location, recordkeeping and the ability to work with other people involved in the child’s care. Ask proposed appointees before relying on them.

Bring these questions to the legal review

• Who receives the insurance proceeds under the current designation?
• Who would have authority to manage money for the child?
• What spending and distribution terms would apply?
• What happens if both parents die or the first appointee cannot act?
• Do the policy forms and estate documents express the same intention?

Revisit the documents after family changes

A new child, separation, death in the family or change in the proposed appointee’s circumstances may warrant another review. Keep current copies and a record of which designations the insurer has accepted.

An insurance call can help organize the policy questions. Your lawyer should advise on the legal arrangement, trust terms and coordination with your estate documents. Start with our family protection check-in if you need to gather the broader questions first.