Life insurance is simply good planning. Naming beneficiaries properly is even better planning, and does take careful thought. Naming minors on life insurance policies (i.e. in the event that both spouses pass away in a “common disaster”, many young families have the children as alternate beneficiaries) has disadvantages. If the children are minors, and become beneficiaries of a life insurance policy, then the proceeds will be paid to the Public Guardian and Trustee (the “PGT”) to hold, until that child turns 19. The PGT must charge an administration fee every year to hold those funds, and the funds are NOT available to the child or its guardian during that time. So, if a child is say 10 years old, those life insurance proceeds cannot be used for the health, education, maintenance and welfare of that child.
A good planning option is a Life Insurance Trust Declaration, which sets out Trusts for minor or young adult beneficiaries, instead of relying on the insurance company designation forms which do not provide for more sophisticated estate planning. It is difficult to defer the age at which a child gets full control of the life insurance proceeds to an age later than the age of majority (19) without a Life Insurance Trust Declaration.
Do you want your child to potentially have control over hundreds of thousands, possibly millions, of dollars at age 19?
As with any Estate Planning, there are circumstances where Life Insurance Trust Declarations will not be appropriate for clients. Another solution is to remove the child’s name as alternate beneficiary under the Policy, and to instead have the funds flow to the Insured’s estate. The Insured can easily make, or update, their Will to include a trust for the child, to hold his or her inheritance (including these life insurance proceeds) on terms preferred by the Insured (i.e. testamentary trust or disability trust).
This is provided as information ONLY; it should NOT be construed as legal advice. You should consult with a lawyer to provide you with specific advice for your own situation. For more information on estate planning and to discuss your specific circumstances, please contact Vanessa DeDominicis on 250-869-1140 or [email protected] Vanessa is a long time Lake Country resident who practices in the area of Real Estate and Wills & Estates at Pushor Mitchell LLP in Kelowna and would be more than happy to assist you.
