For most parents of young children, the primary asset that would be
available should a death occur is life insurance. Often, when I meet
with parents, I find that they have named their children as the direct
beneficiaries of their life insurance policies. While the intent is to
protect their children, most parents do not understand the potential
consequences of this strategy.
In Wisconsin, state law determines that a child will be entitled to
receive insurance proceeds at the age of 18. In the meantime, the
insurance company will not release the proceeds until a guardian has
been appointed by the court. The guardian will have limited discretion
regarding how the funds can be used or distributed. Further, if a
child’s biological parents are divorced or otherwise separated, the
surviving biological parent will most likely be named as the child’s
guardian and therefore the person who is authorized to manage the life
insurance proceeds. This arrangement is often contrary to the deceased
parent’s intent.
When minors are involved, a better strategy is to establish a trust
within your will (known as a testamentary trust) or within a revocable
living trust and to name this trust as the beneficiary of your life
insurance policy. The advantage is that you can choose the trustee (who
will be in charge of the proceeds), and you can also determine the
terms under which the assets can be used and distributed from the
trust. For example, you could name your current spouse, your parent, or
your sibling as the trustee and authorize the trustee to distribute as
much of the trust assets as he or she determines is appropriate for your
children’s health, education, maintenance, or support until each child
reaches the age of 25.
A qualified estate planning attorney can recommend the best strategy
for your situation, especially pertaining to the establishment and use
of a trust. To arrange a free consultation regarding your own estate
planning needs, please contact our office at (608) 824-9540.
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