Naming a child under 18 as beneficiary

What actually happens

A minor cannot give a valid receipt for a large sum of money. So when an insurer is asked to pay a death benefit to a child under the age of majority, it cannot simply transfer the money to them.

What happens instead depends on the province and on whether you made any arrangement.

If you named a trustee in the designation, the insurer pays that person, who holds and manages the money for the child under the terms you set.

If you did not, the money often ends up with a provincial public trustee or equivalent official, or requires a court application for someone to be appointed to manage it. The funds are then administered under statutory rules, with limited flexibility about how they are spent, and often at a cost deducted from the money itself.

Either way, at the age of majority the balance is handed to the child outright.

The two problems

Access before adulthood is constrained. The surviving parent or guardian raising the child may need to apply to the administering body to draw on the funds, for expenses the money was obviously meant to cover. It is bureaucratic, it takes time, and it happens at the worst possible moment.

The full amount arrives at 18 or 19. The age of majority is 18 in some provinces and 19 in others. Whichever applies, the entire balance is handed over on that birthday.

A parent insuring for $700,000 to see three children through to independence has almost certainly not pictured the eldest receiving their share in a single payment at 18. There is no mechanism to stage it unless one was built in advance.

What works better

Name the surviving parent as primary beneficiary. For most two-parent households this is the straightforward answer. The money goes to the person raising the children, immediately and without restriction. Then name a contingent arrangement for the children in case both parents die.

Name a trustee in the designation. Most Canadian insurers allow you to name a trustee for a minor beneficiary directly on the beneficiary form. The insurer pays the trustee, who manages the money for the child. This is a small step at the point you complete the form and it prevents most of the problems above.

Choose the trustee deliberately. It should be someone who will handle money responsibly and who is likely to still be in the child’s life. It is often but not always the person you name as guardian.

Establish a trust in your will. The fuller solution. A testamentary trust lets you specify how the money is used, at what ages it is distributed, and who decides. It handles staged distributions, education funding, and the situation where a child would not benefit from a large sum at 18.

This requires the proceeds to reach the trust, which usually means naming the estate as beneficiary or naming the trust as the designation permits. That has its own consequences around probate and creditors, covered in naming your estate versus a person, and it needs a lawyer to set up properly.

A child with a disability

This one needs proper advice rather than a form.

A lump sum paid to a person receiving provincial disability support can affect their eligibility for those benefits. Provinces have different asset rules, and there are recognized structures, including certain trust arrangements and the Registered Disability Savings Plan, designed to handle this.

Getting it wrong can cost a person the support they depend on. If this applies to your family, speak to a lawyer who works in this area before completing any designation.

Do not make a minor irrevocable

Worth stating separately.

An irrevocable beneficiary cannot be changed without their written consent, and a minor generally cannot give legally valid consent. Naming a child as an irrevocable beneficiary can therefore freeze the designation, and the policy, in a way that is difficult to unwind. See irrevocable beneficiaries.

What to do now

Look at what your designations currently say, on individual policies and on any group coverage at work. If a child is named directly with no trustee, that is worth fixing, and it usually takes one form.

Then make sure you have a will, and that it names a guardian and deals with how money for the children is held. Insurance without a will leaves the more important decisions unmade. See life insurance for new parents.