How to Name a Minor as a Life Insurance Beneficiary

Protecting your loved ones includes ensuring their financial well-being now and in the future. One way to do this is to designate your minor children as beneficiaries on your life insurance, providing them with financial security if you pass away. Read on to learn everything you need to know about leaving a legacy for your children through a life insurance policy.

Laws and Regulations for Life Insurance Payouts to Minors

In Canada, a minor cannot legally receive the death benefit from a life insurance policy until they reach the age of majority.* Therefore, if you pass away before your minor beneficiary legally becomes an adult, a legal representative or trustee will be needed to safeguard the funds.

Your best option is to designate a trustee yourself and to spell out their responsibilities in the trust document, along with when and why disbursements can be made on behalf of the minor (ex: tuition costs, medical or dental expenses). The trustee can be a person, a financial institution, or certain government agencies, depending on the province or territory where the minor lives.

Note that a surviving parent does not automatically become the trustee for the minor’s life insurance payout: to be appointed, they must apply to the court. Not every application of this type is approved, as the court will be mindful of any conflicts of interest; designating a trustee beforehand is always a good idea.

Designating a Minor as a Beneficiary

Leaving money to a minor ensures that the funds will be used by and for them. You may wish to designate your own children as beneficiaries of your life insurance, but you may also choose your grandchildren or a child to whom you are not related. There are a few things you to keep in mind as you proceed:

• Your child’s financial needs
  Depending on the age and personal circumstances of your child, their needs may be greater or less than most. Consider their future educational, healthcare, and dental-care needs, along with any special requirements they may have.
• When your child should get the funds
  Ordinarily, the money would be transferred to your beneficiary when they reach the age of majority. However, you may want to adjust that upward if you believe they may not be mature enough to receive that amount of money. You can also arrange to have it released to them in stages. These details should also be spelled out in the trust document.
• Who will serve as trustee
  As outlined above, you can choose another person or an institution to serve as trustee. The trustee’s responsibilities should be detailed in the trust documentation to ensure the funds are distributed according to your wishes.

Life Insurance vs. Will: Leaving Money to a Minor

You may prefer to leave money to your minor child in your will. However, designating them as a beneficiary on your life insurance has some advantages:

• Immediate access to funds: Your will may have to go through probate, meaning that anything your child inherits will be tied up for a while when it could be invested for the child or used for their immediate expenses.
• Protection from creditors: If you have outstanding debt, your estate must be used to pay it off before any other disbursements are made.
• Controlling the legacy’s value: Your estate’s final value could vary. If you want your minor beneficiary to have a specific amount of money, you are safer with a life insurance policy.
• Tax advantages: Death benefits from life insurance policies are tax-free, whereas an estate may be subject to certain taxes and fees depending on how the will is structured and the applicable provincial and territorial laws.

Managing Life Insurance Benefits for Minors

Naming a minor as your life insurance beneficiary guarantees they will have access to funds to cover their needs. Setting up a trust and choosing a trustee are important next steps: they provide the legal framework that protects the funds and safeguards the rights of your beneficiary.

• What is a trust?
  A trust is a legal agreement governed by provincial or territorial legislation. The legislation spells out the obligations and responsibilities of trustees while protecting the beneficiary.
• What is a trustee?
  A trustee is a person or organization charged with managing the assets in the trust. They are required by law to act in the best interests of your beneficiary and in accordance with the trust document.
• What rights will my minor beneficiary have under the trust?
  Beneficiaries are entitled to accurate and timely information about the trust, the assets in the trust, and the trustee’s actions. They can take legal action if they think the trustee is mismanaging or improperly distributing the trust assets.
• How do you choose a trustee?
  There are three basic options for a trustee: someone you know, a lawyer or professional trustee who is familiar with trusts, or an institution such as a bank or trust company. There are advantages and disadvantages to all three, but you should choose someone with experience, no conflicts of interest, and who you can expect to have the best interests of your minor child at heart.

It is essential to review these arrangements periodically: as they grow older, the minor’s circumstances may change, as might the legal, financial, and taxation landscapes. Your own circumstances may also affect your child’s financial future, especially if you are a single parent or you are going through a divorce. Updating your insurance and your trust agreement may be necessary at that point.

If you have questions about designating a minor as the beneficiary of your life insurance, consult with one of the licensed insurance advisors at Canada Protection Plan. As a Canadian-owned and operated insurance provider serving the community since 1992, we understand the needs and aspirations of Canadians for their children. We offer simplified and no-medical insurance policies in both term and permanent options to suit any customer regardless of pre-existing conditions. Because our plans do not require full medical underwriting, you can get coverage easily and with minimal delay.

* The age of majority is 18 in Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan, and 19 in British Columbia, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, and Yukon.

SOURCES:

• ¹ https://www.canada.ca/en/financial-consumer-agency/services/insurance/life.html
• ² https://www.ontario.ca/page/office-childrens-lawyer-and-estates-and-trusts-matters#:~:text=When%20a%20child%20is%20entitled,deceased%20from%20the%20insurance%20company.