It is not uncommon for parents to name their minor children as beneficiaries of their life insurance policies – either as primary beneficiary, or as alternate beneficiary after the spouse. Either way, there are a number of factors to consider.
If a Trustee has been named, the insurance company will pay the policy proceeds directly to that person, upon receipt of the appropriate claim documentation. This is a good start; however, typically, no special instructions regarding the terms of the trust for the minor are contained in the life insurer’s beneficiary form, which means that the Trustee has no authority to make payments to or for the benefit of the minor child while they are under the age of majority (18 in Ontario) – and then the entire proceeds must be paid out. Most parents do not want large sums of money in their children’s hands at age 18.
If no Trustee is named, there are a few options, none of them ideal. One option is for the insurer to pay the funds into Court, to be managed by the Accountant of the Superior Court of Justice, which manages and invests the funds until the child reaches the age of majority. Prior to the child attaining age 18, funds can be accessed if needed through a program called the Minors’ Funds Program – which means a request is made to the Office of the Children’s Lawyer, which is then presented to a Judge. The request must demonstrate that the money will be used for the direct benefit of the child, and that the parents or caregivers are unable to meet the needs of the child without financial assistance.
The second option is payment to a child’s Guardian of Property, if one is appointed. Parents are often surprised to learn that they are not automatically guardians of their children’s property. A Court Application must be brought, and the Office of the Children’s Lawyer must consent to the appointment of the guardian. Nevertheless, it is important to note that the insurer is not obligated to make payment to a child’s guardian of property, and may choose to pay it into Court as noted above.
The third option is direct payment to the minor’s parent or legal custodian – but only if the insurance proceeds are $35,000 or less. Again, in this case, the funds must be paid to the child upon attaining the age of majority.
While there are advantages to appointing a beneficiary on a life insurance policy, such as avoiding probate fees on the value of the life insurance proceeds, and the speed with which the proceeds can be accessed, it is often preferable to simply have the life insurance proceeds paid to the Estate, and ensure that a well-drafted Will is in place, with appropriate trust provisions for any amount being held for minor beneficiaries. This will ensure that funds are accessible as needed while the child is a minor, and that they can be held in trust until the child attains an older age, if desired.
Our estate planning team at The Ross Firm can help you ensure your life insurance and estate plan work together to properly protect your minor beneficiaries. Contact [email protected] to set up your consultation.
Disclaimer: The above information does not constitute legal advice. We strongly recommend obtaining independent legal advice with respect to any legal issues.
