How many of you have named your children as the beneficiary of your workplace life insurance policies? Of separate insurance policies? How many of you even gave it one second of thought before filling out the paperwork?
Recently, we found ourselves administered the estate of a woman who died leaving two children behind. Prior to her death, she advised us that she had a life insurance policy so we changed the beneficiary from her children to the trusts in her Will for her children. After she died, a second policy was discovered which named children as the beneficiaries. Because one of the children was a minor, the second policy passed into a Guardianship Account for her daughter instead of outright. The difference in how the proceeds from these two policies are handled couldn’t be more different than night and day!
The policy proceeds from the first policy were added to the Testamentary Descendant’s Trust. The Trustee, the Decedent’s brother, uses his discretion in making distributions for the benefit of the Decedent’s daughter. If she needs clothes, camp, ballet lessons, etc., the Trustee can pay for them with no problem.
The policy proceeds from the second policy are subject to complete judicial oversight. Following the proceeding to have the Decedent’s brother appointed as Guardian of her minor child, the Court is now a partner with the Guardian with regard to the funds down to the minute detail of deciding what bank the Guardian must use. The Court Clerk must endorse the insurance proceeds check before the Guardian can deposit it. This means that the Guardian needs to take time off of work to go to Court to meet with the Clerk. The Guardian then has to file a petition requesting permission to use an investment firm and must file an affidavit which includes details of where the Guardian plans to invest, the types of investments and many other details. Anytime the Guardian wants to make a distribution on behalf of the Decedent’s daughter, the Guardian must first petition the Court for permission. There is no guarantee that the Court will approve the request. And while they are waiting for an answer, the child’s needs cannot be met. This process will continue until the Decedent’s daughter is 18. Had the Decedent thought to disclose this policy before her death, then the beneficiary could have been changed to the Trust to avoid this situation.
As you can see, taking the time to review your assets and review beneficiary designations can make a world of difference when it comes to caring for your children when you cannot.