Do I Have to Create a Living Trust if My Only Asset is a Life Insurance Policy and I Name My Minor Child as the Beneficiary?

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A life insurance policy will pass to a designated beneficiary without going through the probate process. However, if you have minor children who are the beneficiaries of that life insurance policy, the life insurance company will generally not distribute those policy proceeds to a minor. Instead, someone usually has to go to court and set up a guardianship on behalf of that minor. If you fail to plan properly, you may end up with a guardian appointed by the court, and that guardian may be someone you would rather not have controlling that minor’s money. Once the guardianship is set up, the court will often try to protect the money in a closed account that can only be accessed by court order. Whenever that minor needs that money for things like braces or medical care or education, the Guardian must petition the court to access the money. Plus, there is a cost for ongoing attorney’s fees and court costs. Then when the minor reaches the age of majority (18 in most states), the law goes to the other extreme. The money is then given outright to the minor with no instructions and no control.

When you have a living trust, you can name the trust as the beneficiary of the insurance policy. The trustee then uses the money to provide for the beneficiaries of the trust according to your instructions. No guardianship or court intervention is required.