Parent and Grandparent Pitfalls -
Does Your Estate Plan Really Protect The Kids?

When you have a will drawn up or buy life insurance you're doing it to make sure your family is protected - in case something happens and you're suddenly not around. And when there are minor children in the picture, it's even more important to get your affairs in order. But many well-intentioned parents and grandparents don't know some common pitfalls to avoid, and in the end the money never gets to the kids who need it, when they need it.

No matter what type of life insurance you have, are thinking of getting, or have in place, you need to pay careful attention to who you are naming as the beneficiary and how you are leaving them the money. Remember, it's the beneficiary schedule on the life insurance policy itself, not anything in your will, that dictates where the money goes - and how you word that beneficiary schedule is critical! For example, a client's father passed away. He had several life insurance policies naming his two grandchildren as beneficiaries, but the grandchildren are minors and the life insurance company won't release the money until the children are adults or until the parents PROVE they are the guardians by going to court! That certainly wasn't what the grandfather had in mind.

It's not that the insurance company doesn't want to give the children the money; it's that they can't because the minor children have no legal power to give what we call a "binding receipt." It's a pitfall we see over and over again - and it is so easy to prevent! And it's not just grandparents falling into the trap. Imagine a husband and wife naming each other as beneficiary of their respective life insurance policies. The kids are the back-up beneficiaries. The unthinkable happens, and both parents are suddenly gone. The money to take care of the kids is tied up until they become adults. But the kids need the money NOW!

So, how can you avoid having the money for the kids getting tied up for years? It's simple. Make sure the beneficiary form of each life insurance policy clearly spells out who the money will go to as "trustee" or "guardian" or "custodian" if a beneficiary is a minor. Each insurance company may have a preference with regards to how this is worded so check with them - but make it clear you want the money for the kids to be available for them no matter what their age! Also, make sure you really feel comfortable and trust the person you choose. You may want to talk to an attorney about setting up a life insurance trust. Whatever you do though, don't guess you're doing it right or just put down "your estate" as beneficiary.

Finally, if you have young children you need to decide who would take care of them in case the unthinkable happens and you aren't around. Most people think the primary reason for having a will is to protect assets, but for families with children choosing a guardian can be a number one priority. There is nothing worse than a family in shock over the tragic untimely death of a loved one - except a fight among family members as to who should be caring for the children or who should be managing the children's money. Remember, you can decide to have one person care for your kids and another person oversee the assets you leave them. It's all up to you and it's in your control - so long as you make the decisions now and clearly state your intentions in your estate planning documents and on your life insurance beneficiary schedules. If you're reading this article it's not too late to avoid the pitfalls and make sure the children in your life are well-protected!

Copyright 2006 - Law Office of Gina M. Ghioldi, P.C.

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