Excerpt from: Estate Planning (click for full article)
Many people use beneficiary designations, and for good reason. Some significant assets, including life insurance policies, IRAs, retirement plans and even bank accounts, allow you to name a beneficiary. When you die, these assets are designed to be paid directly to the individuals you have named as beneficiary.
But that is not always what happens. For example:
- If your beneficiary is incapacitated when you die, the court will probably have to take control of the funds. That’s because most life insurance companies and other financial institutions will not knowingly pay to an incompetent person; they may insist on court supervision.
- If you name a minor as a beneficiary, you are probably setting up a court guardianship for the child. Life insurance companies and other financial institutions will not knowingly pay these funds directly to a minor, nor will they pay to another person for the child, not even to a parent. They do not want the potential liability and will usually require proof of a court-supervised guardianship.