In the 2000 comedy flick Family Man, the investment guru played by Nicolas Cage is asked if he likes kids. His response: “On a case-by-case basis!”
But when minors are to be a party to a life insurance policy we can’t be so selective. Every case is a potential problem and contracts must be implemented accordingly.
Minors are not legally competent (as in not allowed under the law) to own a policy or take possession of the death benefit, so… the easiest solution is to always use a state’s Uniform Transfer to Minors Act (UTMA) when drafting a beneficiary designation for a minor child.
A few basics:
- The device is created in the beneficiary designation and operates like a “poor-person’s trust” when a separate formal trust is too expensive or too complicated to use.
- A custodian-beneficiary is appointed to watch over the policy and proceeds for the benefit of the minor according to the directives in the state’s UTMA.
- A successor custodian should always be appointed, since there is a good chance the custodian may pass away before the minor.
- When the minor reaches the age of majority (which can differ with each state) the policy or proceeds must be turned over to him/her “lock, stock and barrel” – unlike a trust where control can be delayed well into adulthood.
- The wording must comply with state law. In addition, always check with the carrier Claims Department for its approval.
- There must be a full and separate designation for each minor beneficiary.
The most important thing on a life insurance policy is the beneficiary designation. But you’d never know it by the small amount of space given for it on the application – space that is especially inadequate if a minor is involved. A UTMA designation will always take a separate page to be appended to the application.
You probably know that Cage’s real name is Nicolas Coppola. He changed it for the screen because he didn’t want to appear to be cashing in on the reputation of his uncle, director Francis Ford Coppola.