2 Primary and 2 Contingent Beneficiary Question

[Pancur]

Hi,

I know that it's kind of a basic life insurance question but I don't know the answer so any help would be appreciated.
Let's assume a life insurance policy with 2 primary and 1 contingent beneficiaries. Would the contingent beneficiary receive the death benefit proceeds only when the 2 primary beneficiaries are dead or one of the 2 is dead?

Thank you in advance.

 

[VolAgent]

The contingent beneficiaries will only receive the death benefit once all the primary beneficiaries are dead. If one of the primary beneficiaries dies, then their share is generally split proportionately between the remaining primaries. There are ways to change this, but that is the normal method.

 

[HoosierLife]

Ok I gotta question. Lets say I was writing a policy for a husband with 5 small children. The wife is the primary beneficiary. The kids are all under 7. So would I make grandma the contingent beneficiary and then have them set up a will with how/when to give money to kids? How would that work?

 

[SWM]

I personally would list the children as listing Grandma does not legally bind her to passing the proceeds to the children. Normally a guardianship is established for a minor child in the event they are to receive assets. I have a few guardianship accounts that I manage and many came as the result of life insurance proceeds.

 

[Cornelius]

Speak with an Attorney due the possibility of probate issues and guardianship be personal or financial.

 

[jemelton]

I personally would list the children as listing Grandma does not legally bind her to passing the proceeds to the children. Normally a guardianship is established for a minor child in the event they are to receive assets. I have a few guardianship accounts that I manage and many came as the result of life insurance proceeds.

I'm glad I'm not having you manage my wealth. Naming minor chidren as beneficiaries is a horrible idea.

 

[SportsNut]

I'm glad I'm not having you manage my wealth. Naming minor chidren as beneficiaries is a horrible idea.

And the problem is...? You don't suppose that the ins co is going to cut LiL Johnnie a check do ya...? There are worse things that could happen... like naming the insured's estate, and creditors can then claim the ins proceeds once paid to the estate for distribution.

Regarding minor children named as Beneficiaries... the Probate court will name a Guardian who will have specific investment limitations and reporting requirements to the court periodically... until LiL Johnnie becomes of age... the biggest problem with the above is when LiL Johnnie hits 18, the party is over... er should I say just starting because now Johnnie has loads of partyin dollas in his pocket. He'd be a big hit on campus...

 

[Tahoe Ray]

I'm glad I'm not having you manage my wealth. Naming minor chidren as beneficiaries is a horrible idea.

I read SWM's post as establishing a guardianship prior to death (I could have read it wrong)...that being said, it is a MUCH better option than naming Grandma as a bene who could spend the money on herself voluntarily or not. UTMA is simple to administer and depending on your state, may take some time before the child has accessibility to the money.

The best option is usually a trust but depending on the size of the estate, not always realistic. Smaller estates could use UTMA, larger ones a trust.

Nothing is perfect in estate planning because the rules of the game can change at halftime but you have to hope that what you set up works to the wishes of the benefactor...

 

[Larry Tew]

I'm glad I'm not having you manage my wealth. Naming minor chidren as beneficiaries is a horrible idea.

That's real helpful, since you seem to ask a lot more questions on this board than you answer. If you're going to insult the guy, the least you could have done is tell him WHY naming minors as beneficiary isn't the best option. Let me take care of that for you.

The best possible solution is to get the parents to establish a testamentary trust (through their will) so that the life insurance proceeds pay to the trust. The minor children are beneficiaries of the trust instead of the life insurance.

The trustee(s) of the trust can be a combination of corporate and / or personal, but it makes sense that the trustee be the guardian of the minors. The parents have established the guidelines of how the money is to be used for the benefit of the minors, and has likely given broad discretionary power to the trustee.

The key here is actually getting the parents to do this. At a minimum, the agent can explain this to the parent. The agent can tell the parents that by just naming the children as beneficiary, the insurance company sits on the money until the child reaches majority or is instructed to release funds to the guardian by court order.

This means that without the trust, the guardian has to keep a record of EVERY cent spent on the children and must petition the court for rembursement of actual documented expenses. WITH the trust, the guardian is making the decisions based on the authority granted them by the trust.

If the parent isn't going to set up the trust, another option is to name the likely guardian as beneficiary instead of the minor. Obviously, without the trust, this gives the beneficiary complete control of the proceeds, so it better be a person the parents have 100% trust in to do the right thing for the child.

The decision is the parents, but it's our duty to explain this to them.

 

[HoosierLife]

That's real helpful, since you seem to ask a lot more questions on this board than you answer. If you're going to insult the guy, the least you could have done is tell him WHY naming minors as beneficiary isn't the best option. Let me take care of that for you.

The best possible solution is to get the parents to establish a testamentary trust (through their will) so that the life insurance proceeds pay to the trust. The minor children are beneficiaries of the trust instead of the life insurance.

The trustee(s) of the trust can be a combination of corporate and / or personal, but it makes sense that the trustee be the guardian of the minors. The parents have established the guidelines of how the money is to be used for the benefit of the minors, and has likely given broad discretionary power to the trustee.

The key here is actually getting the parents to do this. At a minimum, the agent can explain this to the parent. The agent can tell the parents that by just naming the children as beneficiary, the insurance company sits on the money until the child reaches majority or is instructed to release funds to the guardian by court order.

This means that without the trust, the guardian has to keep a record of EVERY cent spent on the children and must petition the court for rembursement of actual documented expenses. WITH the trust, the guardian is making the decisions based on the authority granted them by the trust.

If the parent isn't going to set up the trust, another option is to name the likely guardian as beneficiary instead of the minor. Obviously, without the trust, this gives the beneficiary complete control of the proceeds, so it better be a person the parents have 100% trust in to do the right thing for the child.

The decision is the parents, but it's our duty to explain this to them.

Thank you. That's what I'm looking for.