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Guardianships of Minors and the Trust Solution

Life insurance policies and retirement policies are examples of “non-probate assets.”  These accounts will transfer to the beneficiaries named in those policies upon the death of the account holder.  We have often heard clients previously advised to name the (intended) guardian of their minor child as the beneficiary on that client’s insurance or retirement account. However, this can be very risky and result in unexpected outcomes. We have highlighted below a few of the risks associated with naming your children’s guardians as the beneficiary of your insurance and retirement accounts:

  1. Giving your assets to someone else gives them legal ownership of those assets. That named beneficiary may decide they’d rather not honor their commitment to providing for your children, or perhaps not to the extent you had hoped.
  2. Even if you trust them to honor their commitments, life sometimes gets in the way. Because those assets legally belong to the named beneficiary, those assets can be exposed to their personal liabilities. For example, suppose they get in a terrible accident and seriously injure someone else. The assets earmarked for your children could be exposed to a judgment for those claims.
  3. What happens if the people to whom you left the assets to die? The assets you left to them will become part of their own estate and will pass to their own heirs, who may not have made a commitment to you to care for your children.

Instead of using this potentially risky guardian-naming strategy, we suggest creating a trust, either as part of your will (a testamentary trust) or revocable trust.  Once you create a trust, you can name the trust as the beneficiary of the policy (or name your children as the beneficiary, subject to the trust in your will). 

Additionally, not all your assets pass by beneficiary designation. If you have real estate or investment accounts without a named beneficiary, those assets will pass through your probate estate.  If your intention is to pass those assets to your children, and you do not have a trust for their benefit, guardianship for the estate of your children may need to be created. Guardianships of the estate are expensive and time-consuming to set up and administer.

Trusts are not just for the wealthy. They can be created in a will and funded when you die. If you have minor children, they should be an essential part of your estate plan.


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