A life insurance policy is a great way to enjoy more peace of mind, knowing that your children can still benefit from financial security even if you had to pass away. Still, there are things you need to know about minors and money.

For starters, in South Africa, the law dictates that those under the age of 18 can’t inherit anything directly – including life insurance payouts. This is why many people who take out life insurance policies to protect their children usually list their child’s other parent as the beneficiary, having briefed them that the money is intended for the child’s benefit – not to buy a new sportscar and ride off into the sun with their second spouse.

How a testamentary trust can protect your payout  

If you feel like you couldn’t trust your child’s other parent in this regard, or if they weren’t around or were incapacitated or unwilling for whatever reason, consider creating a testamentary trust. It’s a trust that’s set up according to terms you can dictate in your Will and comes into effect after your passing. This means that you can list your minor child as the beneficiary of your life insurance and, if they had to claim on your policy before their 18^th birthday, the testamentary trust receives it on their behalf until they turn 18.

The trust would be managed by your child’s legal guardian whom you can appoint in your Will. (Without a Will, the court will be tasked with appointing your child’s legal guardian and this might not be a person of your choosing so, if you don’t have a Will, apply for one with MiWill today!)

More reasons to consider a testamentary trust

The great thing about a testamentary trust is that you get to dictate how it works and can specify when and how the funds are distributed to its minor beneficiaries. This ensures the payout is used for essential needs or important things, like school supplies or orthodontics, versus frivolous splurges like the latest smartphone.

Another way to help ensure good money management that’s in the best interest of any minors is to appoint a financial professional as one of your trust’s trustees. (A trustee is the person or people who manage the trust.)

Lastly, testamentary trusts also offer tax advantages that can minimise estate taxes as well as income taxes on trust earnings to preserve even more of the payout for your young beneficiaries. At the end of the day, that’s all you really want, the very best for your children, which is why a life insurance policy is a great way to help safeguard their financial future.

Did You Know:

You can now take out life cover with us online in a few simple steps. No calls and no agents! Make sure to take care of those you love today by buying MiWayLife cover online.