Life Insurance Beneficiary

Dear Len & Rosie,

I lost my wife to cancer. About six years ago we bought ourselves life insurance and we each named our daughter as beneficiary. Because my daughter is nine years old, the insurance company is asking for a document naming her court-appointed guardian. I would like to know what I need to do to get something like this. Otherwise, they will keep the money for another nine years until my daughter turns eighteen. Please help.


Dear Morgan,

You have run into one of the unfortunate problems with leaving assets to a minor child. Children under the age of eighteen do not have the legal capacity to manage their own affairs. Your daughter cannot legally sign the documents necessary to cash in her mother’s life insurance policy, and neither can you.

There are several ways of dealing with this problem, depending on how much the life insurance policy is worth. If it is worth $5,000 or less, you can collect the policy directly under Probate Code section 3401.

If it’s worth more than that, then you have two options. One is to do what the insurance company said and file for a guardianship over your daughter. You can then collect the insurance and use it to help support your daughter’s needs. When she’s 18, the guardianship will terminate, and the remaining portion of her funds will be distributed to her directly. The downside of a guardianship is that you will have to periodically account to the court for what you do with every last dime of your daughter’s money.

As an alternative, you can petition the court under Probate Code section 3411 for an order directing the disposition of the money. If you’re lucky, you can get the court to put the money into a custodial account under the Uniform Transfers to Minors Act. Don’t count on this, however. The custodian of a UTMA account doesn’t have anyone looking over his or her shoulder. There have been many cases in which a UTMA custodian steals the money instead of holding it for the minor - and since your daughter is only nine years old, a crooked custodian could get away with it. Not that you’re apt to steal from your daughter - crooks like that don’t name their minor children as life insurance policy beneficiaries.

The final alternative is for the court to order the funds deposited into an interest bearing blocked account. You won’t have to account to the court, but if you need any of the money to support your daughter before she turns eighteen you’ll have to obtain court permission first.

The lesson to take away from this is that you shouldn’t name a minor child as a beneficiary of anything. Instead, spouses should either leave the insurance to one another or they should create an estate plan that provides for your minor children with a “Sprinkling Trust” where money can be held for the benefit of their children without court supervision.

Len & Rosie