Typically, a married couple with young children has life insurance provided by their employers and perhaps policies they have purchased to cover the life of the spouse who generates most of the income. The surviving spouse will be designated beneficiary of the policies. If the insured spouse dies, the survivor receives the insurance proceeds and will be able to continue paying the mortgage and feeding the children. But, what if both parents die? Who should be the beneficiary of the insurance in that case: Often the parents will name the children as the secondary or contingent beneficiaries if there is no surviving spouse. This, however, may not be what the parents really want.
There are problems with naming children as beneficiaries of life insurance policies. The first problem is that a child under 18 cannot own and manage his or her own property. A guardian of the property must be appointed to manage the property for the child. Parents can name a guardian in their wills and that guardian will be subject to supervision by the probate court; however, a guardianship ends at age 18. As each child reaches age 18, his or her share of the parents' property and insurance money will be paid directly to the child. When you consider that insurance policies may pay $50,000, $100,000, or more, most parents feel that such a sum is too much for most 18-year olds to handle. Instead, they may desire that the money be managed for their children's benefit beyond age 18. To do this, the parents must create a trust.
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