Can You Name a Minor as a Beneficiary of Your Life Insurance Policy?

For many parents, it seems natural to name your child as the beneficiary of your life insurance policy. You want those proceeds to provide for them if something were to happen. But North Carolina law does not allow minors to receive life insurance funds directly. When a minor is named as beneficiary, the payout cannot go straight to that child. Instead, the process becomes more complex and it often involves the courts.

A thoughtful estate plan that anticipates these legal restrictions can make all the difference in protecting your child’s benefit and ensuring it is used the way you intend.

Why Naming a Minor Directly Causes Complications

The Law Does Not Permit Direct Inheritance

In North Carolina, anyone under the age of 18 cannot legally inherit or directly receive life insurance proceeds. Naming a minor on your policy does not mean they will get the money when you pass away. Instead, the insurance company must wait until a court processes the claim and an adult guardian is appointed to manage the funds on behalf of the child.

This legal guardian (called the “Guardian of a Minor’s Estate”) must go through a formal court proceeding to receive the money, and annual accountings are required thereafter. This process can delay access to the funds by months or longer, exactly when they may be needed most.

What Happens When a Minor Is Designated, Without Proper Planning

The Court Must Step In

When an insurance company sees that the beneficiary is a minor, it must refuse direct payment. To release funds, the court must appoint a financial guardian. That person is bonded and overseen by the court and must file yearly reports on how they use the money for the child’s benefit.

During that period, the child receives no direct access to their benefit. The process is designed to protect, but it can also become burdensome, both emotionally and financially.

Strategies to Avoid the Pitfalls

Use a Trust to Hold Life Insurance Proceeds

One of the cleanest solutions is to name a trust, rather than the minor, as the beneficiary. A trust can hold the proceeds, shield it from probate, and direct how and when the money is distributed (such as at certain ages or for specific purposes).

Life insurance trusts are effective tools for protecting minor beneficiaries. If properly drafted, they honor your instructions and avoid any need for court appointment of guardians. The North Carolina statutes governing trusts outline how these structures operate.

Consider a UTMA Custodianship Instead

Another option is to name a Uniform Transfers to Minors Act (UTMA) custodian as the beneficiary. This allows the proceeds to be managed by a custodian until the child reaches adulthood. Designation of an approved custodian avoids the need for court supervision, though you cannot control distribution schedules as precisely as with a trust.

Use a Testamentary Trust

If a trust seems too complex for now, you could create a testamentary trust in your will that activates when you pass. This allows you to name a trustee who handles the minor’s inheritance until they are old enough to receive it directly.

Summary Table

Contact an Estate Planning Lawyer Today

Naming a child directly on your life insurance policy may feel intuitive, but it triggers legal oversight that can be slow and costly. A trust provides the most flexibility and privacy. A UTMA presents a simpler alternative, though with fewer controls. A testamentary trust offers middle ground for those comfortable using their will to set conditions.

Each of these strategies offer better outcomes than naming a minor outright. Consulting with an estate planning attorney is the best way to align your life insurance designations with your overall intentions, and to protect your child’s inheritance from unnecessary complexity.