Author Topic: Life Insurance Payout to Minor Child Question  (Read 946 times)

Loren Ver

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Life Insurance Payout to Minor Child Question
« on: February 08, 2022, 02:51:47 PM »
I am helping someone that was recently widowed.  One of the life insurance policies was set up to pay half to her and half to the son.  The son just turned 17 (Feb 2022).  So since he is a minor in the state  (Indiana) they cannot send his half of the money to him or to his mother (the widow) on his behalf. 

From my understanding (from what the life insurance company said)...  She would have to apply for custodianship and/or guardianship in order to get them to pay out the life insurance policy to the son (his half). Does this sound right to you?  The son lives with her and always has.  Father lived with them until he passed away.  Is this worth the effort?  What's the best path moving forward?

Also, would the company just pay it out when he turns 18 (Feb 2023) as another option?  He would no longer be a minor then right?

The mom's goal was to get the money away from the life insurance company and put it towards the son's college or his already established trust (to be accessed when he turns 24).  Then she would not longer have one more company to keep track of.

This policy was just 1x the husband's salary plus an additional amount (10k I believe), so the smallest of the amounts they will be getting (under 100k total).   Trying to think of the most logical path forward with the least amount of paying lawyers or making life more difficult during an already difficult time.  I know almost nothing about guardian/custodians for kids - I thought parents automatically got a version of it for their minor children unless something went wrong. 

Thank you in advance for your help,
Loren


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Re: Life Insurance Payout to Minor Child Question
« Reply #2 on: February 08, 2022, 07:04:47 PM »
It sounds reasonable to me.

While I'm not super familiar with this part of things, the basic idea is that minors can't enter into contracts, and pretty much all bank accounts have contracts under the hood that govern the banker/client relationship.

A custodian or guardian is just an adult person who agrees to enter into that underlying bank contract and hold the money for the minor's benefit.  Obviously the mom is a perfectly reasonable choice in both regards.

I bet she can just open a custodial bank account for him at her bank, then work with the insurance company to get the son's portion of the proceeds deposited into that bank account.  There may be some signatures or insurance paperwork or medallion guarantees and such, but it certainly doesn't need a lawyer.

The age thing is always unclear to me.  The insurance company may require waiting until age 21, not 18.

I personally wouldn't want the insurance company to hold onto it, partly because it could get lost or forgotten, and partly that they may require waiting another four years to get the money, and you said the mom may want to use it for his college.

Loren Ver

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Re: Life Insurance Payout to Minor Child Question
« Reply #3 on: February 09, 2022, 09:22:32 AM »
This all sounds pretty reasonable to me, thank you. 

I really didn't want to go the lawyer route or leave the money with the insurance company, they can be hard to get a hold of.

We will see what we can do with a Uniform Transfers to Minors Act, that seems the way to go.  We will talk to the bank and the life insurance company and see what can be worked out.

Thank you so much for your help!

Loren

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Re: Life Insurance Payout to Minor Child Question
« Reply #4 on: February 09, 2022, 09:36:05 AM »
Sounds like a good plan.

UTMA is basically just a legal framework that has been adopted in almost every state that provides a common way to set up custodial accounts.  UGMA was an older version of the law.

Loren Ver

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Re: Life Insurance Payout to Minor Child Question
« Reply #5 on: February 11, 2022, 08:38:41 AM »
So after the widow contacted the involved parties it looks like the only option that will work will be waiting until the son turns 18 and requests the money from the life insurance company.

The life insurance company will not deposit the money into an account that has the mother listed on it (in any form), but the bank requires an adult to be listed since the son is a minor.  So then the bank would have to be listed as the account trustee for the minor (getting the mom out of the loop).  The bank will not do this without a court order, as they do not take this lightly.

Since the son doesn't need the money until he is older anyway, the widow decided just waiting is the best move.  He will get the money and interest next year.

Loren

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Re: Life Insurance Payout to Minor Child Question
« Reply #6 on: February 11, 2022, 11:35:56 AM »
So after the widow contacted the involved parties it looks like the only option that will work will be waiting until the son turns 18 and requests the money from the life insurance company.

The life insurance company will not deposit the money into an account that has the mother listed on it (in any form), but the bank requires an adult to be listed since the son is a minor.  So then the bank would have to be listed as the account trustee for the minor (getting the mom out of the loop).  The bank will not do this without a court order, as they do not take this lightly.

Since the son doesn't need the money until he is older anyway, the widow decided just waiting is the best move.  He will get the money and interest next year.

Loren

It's your acquaintance so your choice, but that sounds like wrong and potentially illegal behavior by the insurance company.  What they are telling you may be true, but I doubt it is the whole story and I think there has to be a better option.

I would check with the insurance regulator in the state and see if they can help you.  Or the CFPB.

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Re: Life Insurance Payout to Minor Child Question
« Reply #7 on: February 11, 2022, 02:05:05 PM »
I believe what the life insurance company is telling you is correct. They will only release the funds to the minor once they reach the age of majority, or with a court order showing who’s been charged with taking care of funds for the minor. This is all to protect the minor and ensure the funds go to benefit them. An UTMA would be appropriate if the mother were giving money to her child. That is not the case in this instance and the courts would most likely want a custodial account opened that is in the minor’s name with the named custodian. Oftentimes these types of accounts require a court order to withdraw from and/or the child reaching the age of majority.

I recently cashed in an insurance policy when my father passed away and the life insurance company paid 5% interest on the proceeds from the date of death until the date the check was issued. Honestly, if the life insurance company you’re working with does the same thing, waiting until the child’s 18th birthday may not actually be the worst way to proceed.