How to Name a Life Insurance Beneficiary When Divorced with Minor Children

By Brette Sember, J.D.

How to Name a Life Insurance Beneficiary When Divorced with Minor Children

By Brette Sember, J.D.

In a divorce case, the noncustodial parent, or the parent who does not have physical custody, is often required to take out a life insurance policy for the benefit of the minor children. The policy is protection should the parent die and no longer be able to pay child support. Most life insurance companies do not allow a minor to receive life insurance benefits, so you cannot name the child as the beneficiary. However, there are several options available to ensure the child receives the funds.

Toddler held by mother

If you just list your minor children as your beneficiaries and you die while they are still minors, the insurance company will not disburse the funds to them. Instead, the probate court handling your estate selects a trustee or custodian—often the other parent or former spouse—to manage the funds until the children reach majority. When the children turn 18 or 21, depending on your state laws, the money is then given to them.

Choosing Your Own Custodian

If you want to leave your life insurance to your minor children, you can choose your own custodian so that the probate court does not choose one for you. Ask your life insurance company for a form to name a custodian for a minor beneficiary. Complete the form and return it to the insurance company. You can choose anyone you want, even your ex-spouse. You should choose someone you trust and who will keep your children's best interests in mind while managing the funds.

Be sure to ask your intended custodian if this is a responsibility she is willing to take on before just putting her down on the form. If you name her and she declines after you die, the court would choose someone for you.

Naming Your Estate as a Life Insurance Beneficiary

Instead of naming your children as beneficiaries of your life insurance policy, you can name your estate. The problem with this option is that the money will not be immediately available to your children due to the fact your estate may go into a lengthy probate process after your death, during which time your children could be without financial support.

Life insurance companies tend to pay out claims pretty quickly, within a couple of weeks. But if you name your estate as the beneficiary, the money goes into your estate, which, after your death, is held by the probate court. Your estate, in turn, is then distributed according to your will—or, if you die without a will, according to state laws. Your estate's debts are paid first, before any money goes to your beneficiaries, so it is possible some of the life insurance proceeds could be used for this.

Additionally, if you make the policy payable to the estate, the amount of the payout is then subject to estate taxes. Life insurance, on the other hand, is not taxable when paid directly to beneficiaries.

Using a Life Insurance Trust

Another way to handle life insurance proceeds for minor children is to set up a trust, which you then name as the beneficiary of your life insurance policy. The life insurance benefits are paid into the trust upon your death. To create the trust, you execute a trust document that specifies exactly what happens to the funds after your death. For example, you could choose to have the funds held until your children are adults, or you could specify that the funds be used to pay for your children's needs while they are minors. You can even get creative and have certain amounts released to your children each year or hold the funds until they graduate from college.

Name a trustee to be in charge of managing the funds. You can choose anyone you want, even your ex-spouse, to be the trustee. With a little thought and planning, you can ensure your children are provided for in every eventuality.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.