Should minor children be named as primary, or even secondary beneficiaries of life insurance proceeds?

Summary

You have now been through all four "intents" and should have a vague idea of how the different beneficiary designations play out in each one. This should give you a head start in discussing with the broker and perhaps a legal advisor about what kind of primary or secondary beneficiary designation(s) you may want to set up to handle the contingency of your minor children being left with no parents.

As you may have noticed (refer to the matrix below if necessary), a trust is the only beneficiary designation that appears well suited to handle all of the "intents". You would need to discuss the details with an estate planning attorney. If you do not want to do a trust, then you may consider using more than one type of beneficiary designation in order to handle all of the intents. Just as you can name more than one beneficiary; you can also use more than one beneficiary designation for the same proceeds of the same beneficiary class. You would only need to allocate the desired percentage to each type of beneficiary designation and to the beneficiary(ies) within that designation if necessary. A broker at PGA Financial would be glad to discuss this with you and show you how to make the beneficiary designation(s) of your choice.

Summary matrixes

The matrixes assume a situation where one parent is already deceased or otherwise incapacitated from receiving the life insurance proceeds and a single parent with minor children is making any of these beneficiary designations; or that a married parent with minor children is making any of these as secondary beneficiary designations in case something happens to both that parent and their spouse.

If you wish to go back to any detailed explanation of what you see in a matrix, you'll find the appropriate links at the bottom of this page.

Matrix One Shows Intents #1 & #2

Matrix Two Shows Intents #3 & #4

       Matrix One:

Intent #1:
Money to raise the kids. Keep money pooled together if possible.		 Intent #2:
Reward guardian and accommodate for kids (bigger house, car, etc.).
Beneficiary Designation (A)
Name a trust you have set up.		 Can do easily.  Minimum to moderate risk -- depends on  set up. Set up may be costly.  OK freedom. Can do easily.  Minimum to moderate risk -- depends on  set up. Set up may be costly.  OK freedom.
Beneficiary Designation (B)
Simply name a trusted adult.		 Can do this -- gives maximum freedom, but also faces maximum risk. Can do this quite well, only if the trusted adult is appointed guardian of your children.
Beneficiary Designation (C)
Name minor children; also name informal trustee (form provided by ins. co.) 		Can do this -- gives substantial freedom, but faces substantial risk.  Also money can't be pooled together. May be not very well suited for this because it might be seen as a misuse of the child's money, unless  very needed for the child.
Beneficiary Designation (D)
Name children; also name adult to receive $ "for the benefit of" any minor. 		See (C) or (F).  It would be handled like either of those, depending on the specific insurance company involved. See (C) or (F).  It would be handled like either of those, depending on the specific insurance company involved.
Beneficiary Designation (E)
Name children, also name custodian under state UTMA law (for minors). 		Can do -- gives good freedom. Has risk [though less than (B), (C), or (D)]; unless custodian bonded, then less freedom, but excellent safety. No pooling of $ allowed. Not well suited for this. Will probably be viewed as misuse of the child's money unless highly necessary for child.
Beneficiary Designation (F)
Simply name your minor children.		 May or may not be able to do this well. Has least freedom -- needs judge's OK & reporting to the court. Many costs. Otherwise, very low risk. No pooling of money allowed. Not well suited for this. Will probably be viewed as a misuse of the child's money unless highly necessary for the child.

         Matrix Two:

Intent #3:
Leave inheritance for kids in a responsible and reasonable way.		 Intent #4:
Pay off your final expenses and obligations in a timely manner.
Beneficiary Designation (A)
Name a trust you have set up.		 Can do easily.  Minimum to moderate risk -- depends on  set up. Set up may be costly.  OK freedom. Can do easily.  Minimum to moderate risk -- depends on  set up. Set up may be costly.  OK freedom.
Beneficiary Designation (B)
Simply name a trusted adult.		 Not well suited for this. Can work if person is honest. Possible   gift tax problem.
Beneficiary Designation (C)
Name  minor children; also name informal trustee (form provided by ins. co.) 		May be not very well suited for this because it might be seen as a misuse of the child's money, unless  very needed for the child. No
Beneficiary Designation (D)
Name children; also name adult to receive $ "for the benefit of" any minor. 		See (C) or (F).  It would be handled like either of those, depending on the specific insurance company involved. See (C) or (F).  It would be handled like either of those, depending on the specific insurance company involved.
Beneficiary Designation (E)
Name children, also name custodian under state UTMA law (for minors). 		Can do. Has risk unless custodian bonded. Turning over $ can delay to age 25 in CA -- other states ages 18 -- 21. Annuity  payments could probably be set up before   adulthood to avoid giving  lump sum then. No.
Beneficiary Designation (F)
Simply name your minor children.		 If the child's share is large enough, it may be excellent at preserving your child's inheritance, but will turn it over to him at age 18. No.
Intent #1 Intent #2 Intent #3 Intent #4
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