You might think that naming your spouse as the primary beneficiary on your life insurance, followed by your kids as secondary beneficiaries, is a great idea. But what happens if you and your spouse “ride off into the sunset” together, so to speak, leaving the kids as the beneficiaries? Or maybe you’re paranoid about naming your spouse as primary beneficiary on that million dollar policy, lest your spouse feel tempted to do the unthinkable -- so you name your kids as the primary beneficiaries. Or maybe you’re a single parent and you name your kids as the primary beneficiaries (naming your parents or siblings with the "understanding" they'll take care of your kids is whole other can of worms, which I'll cover a different day.)
Naming your minor child as a beneficiary on your life insurance policy or retirement plan can result in major delays and court supervision? A guardian would have to be appointed by the court to receive the proceeds on behalf of and for the benefit of the minor. And when the guardianship ends (age 18 in California), your child will receive a lump sum payment of the life insurance proceeds – did you really want your child to get a large chunk of change at that age? This is just one example of how assets fail to pass on to loved ones in a smooth transition due to lack of information.
One solution, if you have a trust, is to designate the trust as the beneficiary on the life insurance policy. Then the insurance proceeds will pass on according to the instructions in your trust. If you don't have a trust, another solution is to have a paragraph in your will naming a guardian for your minor children and a guardian for their estate (aka, their property) - this can be the same person or not. This would only take effect in the event the children's parents are not available to care for them.
Roughly 137 probate cases are filed in California every day – this includes petitions to have guardians appointed for minors, conservatorship proceedings, will contests, petitions to start probate proceedings and other matters that arise under the probate code.
Next Up: Understanding probate
