Using a Trust to Name Minor As Life Insurance Beneficiary

[DEO2483]

My question involves estate planning in the state of: NY

I am trying to figure out the best way to name my minor son as beneficiary of my life insurance policy. My wife is currently the beneficiary, but I want the money to go to my son in the event my wife and I died at the same time. I was told by my life insurance agent that the best way to this is with a trust. She said that this will avoid probate.

I used the NOLO Quicken Will Maker and Online Trust software to make a trust. When naming my son as beneficiary of the trust, in the event my wife does not survive me, it gave me two options, to create a childs sub trust or name a UTMA custodian. I am not sure which to, or if a trust is the best way to go about it.

My intention is this, the person who my wife and I have chosen as guardian of our child should we both die is someone we trust very much, so is the backup guardian. I want them to be able to the use the money for my son in any way they feel is appropriate, without court interference, and of course for my son to get the remainder of the money when he reaches 18 or 21.

So, is a living trust with a UTMA custodian the best way to do this? Or another way, for instance forgoing the trust and simply naming my son as contingent beneficiary of the policy with a UTMA custodian?

Thank you.

[flyingron]

As your agent probably explained, normally if you wanted to the insurance money to be paid to someone else if your primary beneficiary is dead is to name a contingent beneficiary on the policy. The problem is that minors can't manage the payout of the insurance, so either a guardian needs to be appointed or you can, as he suggests, use a trust or as your research has shown, a UMTA custodian. The trust will allow you to give finer/more elaborate control rather than just delegating everything to the custodian.

You seem to mix terms around. Naming a custodian UMTA for the child and setting up a Child Trust are distinct choices.
"Living trust" and "Sub trusts" are actually the wrong terms for the kind of trust you'd want for the child. You want a "Child's Trust".

The other option you can do is to make YOUR living trust the beneficiary of the insurance policy. Then you need to write the trust so that it goes to the wife/child as appropriate. Note that this is probably only worth the effort if you'd have other assets you'd like to put in the living trust.

Frankly, if you're going through this elaborate estate planning, I'd recommend you and your wife get to a proper estate planning attorney. This will allow you to have an integrated plan for:

1. Living trusts for you and your wife's assets (and provision for what they become after your death(s)).
2. Wills to cover other items not in the trusts.
3. Statements as to guardianship of the minor children in the event both of you pass.
4. Advance medical directives (Living Wills) to indicate your desires in the case of medical incapacitation.
5. Medical and/or General power's of attorney.

The lawyer will typically also take care of helping you deed over the assets into the trusts and changing whatever insurance beneficiaries are appropriate.

Not only insurance but there are likely other accounts (retirement, bank accounts, etc..>) to be dealt with.

[DEO2483]

I should clarify. If I use a trust, my living trust will be the beneficiary of the life insurance. Using the software to create MY living trust, when it comes to "property management for beneficiaries" my choices are "Child's Subtrust" or "Custodianship" (these are the choices which will be contained within MY living trust, I can only choose one).

My main question is related the trustee or the custodian, depending on which I choose. Will either of these, the trustee of the child's sub trust or the custodian, be able to use the money without fist getting permission from an authority?

My life insurance is the only property that the trust would cover, I don't have a lot of assets besides my home. The living trust was recommended by my insurance agent, and, simultaneously not recommended by an attorney friend of mine (not an estate plan attorney).

Considering my ultimate goal here is for the person who ends up taking care of my son to have the ability to use the money with requesting permission from anyone, which would be the best way to approach this?

Living trust w/ child's sub trust option for management of the money?
Living trust w/ custodianship option for management of the money?
Name minor son as beneficiary of policy with UTMA custodian (skip the trust)?
Something else I am unaware of?

[flyingron]

Yes, you need to use a trustee or custodian you trust.

Frankly the easiest and simplest would be just set the contingent beneficiary to "Joe Goodfriend Custodian for Billy Littledeo under the Uniform Transfer to Minors Act".

All this trust things seems silly if it's just a continent insurance payout.

[DEO2483]

That's kind of what I thought. Thanks for the help.