Limiting the Use of Life Insurance Benefits
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UPDATED: Oct 3, 2012
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I purchased a life insurance policy to be used for my childrens’ college education. I don’t know how to safely designate how the money should be given out. Can I just name an executor?
You have illustrated one of the major shortcomings of Life Insurance and 401(k), and IRA beneficiary designations.
These plans make it real easy to make a simple beneficiary designation. And you can even name several people as beneficiaries. In the event of death the proceeds of the policy or plan would go directly to the beneficiary and avoid going through probate. But complicated designations, with all sorts of contingencies, are rare.
Why not name the kids as beneficiaries directly? If the beneficiaries are under 18 at the time of death, the money is held for them (with interest) until they are of age. And at 18 they get it; of course if they decide to get a new car instead of attend college, poof, there goes the money. Only a type of trust agreement would permit the money to be held and used only for schooling, etc., but that is expensive.