Episode 95: What Divorced Parents Need to Know About Life Insurance
Episode 95
Host: Jill Mastroianni
What Divorced Parents Need to Know About Life Insurance
Your parenting plan may require you to maintain life insurance for your children. But does your beneficiary designation actually accomplish what the court order requires?
In this episode of The Death Readiness Podcast, Jill looks at a life insurance provision in Tennessee’s form parenting plan and walks through what happens when you try to translate those instructions onto an actual life insurance beneficiary form. She explains why naming a minor child directly can create problems, the difference between a custodian and a trustee, and how thoughtful estate planning can help make sure the parenting plan, life insurance policy, and estate planning documents all work together.
Having the life insurance policy is only part of the plan. The money also needs a clear path to the people you intended to protect.
What You’ll Learn in This Episode
Why divorce should trigger an estate plan review. If your parenting plan or divorce agreement requires you or your former spouse to maintain life insurance, that requirement needs to be considered alongside your estate planning documents and beneficiary designations.
Why a court order may not tell you everything you need to know. Tennessee’s form parenting plan can require a child to be named as the beneficiary of life insurance with an adult serving as “trustee,” but that language may be surprisingly difficult to translate onto an insurance company’s beneficiary designation form.
What can happen when you name a minor directly. A life insurance company may not be able to simply hand a large death benefit to a child. Depending on the circumstances, payment could be delayed while a court appoints a guardian to manage the child’s assets.
The difference between a custodian and a trustee. A custodian under the Uniform Transfers to Minors Act, or UTMA, can manage property for a minor without a separately drafted trust. But a custodian and a trustee are not the same thing, and that distinction matters when you’re also trying to comply with a court order.
Why UTMA can be useful but may not be the ideal long-term solution. UTMA can provide a relatively simple way for an adult to manage money for a child, but the child eventually receives control of the property at the age specified by state law, usually age 21. That may not be what you want for a significant life insurance benefit.
Why simply selecting “trust” on a beneficiary form may not solve the problem. If the insurance company asks for the trust’s name, date, and other identifying information, you need an actual trust, not simply language in a parenting plan referring to someone as a trustee.
How a trust created under a Will can provide the missing instructions. A properly drafted Will can create a trust that identifies who manages the life insurance proceeds, what the money can be used for, how long the trust lasts, what happens to money that remains, and who steps in if the original trustee cannot serve.
Why the beneficiary designation cannot be considered in isolation. The goal is for the parenting plan, estate planning documents, and life insurance beneficiary designation to all tell the same story.
Why state law matters. In the Tennessee example discussed in the episode, Jill explains how she may coordinate the beneficiary designation with a trust created under the Will. But the treatment of life insurance proceeds is state-specific, so this is not a strategy to adopt without first considering the law where you live.
Resources & Links
Watch this episode on YouTube: https://youtu.be/vmCCII-x5AU
Tennessee Permanent Parenting Plan Order. Review the Tennessee form discussed in this episode, including the life insurance provision in Part III, Section E. https://circuitclerk.nashville.gov/forms-permanent-parenting-plan/
Estate Planning After Divorce. Listen to Jill’s earlier episode about estate planning changes to consider after a divorce. Episode 49: How to Keep Your Ex Out of Your Estate Plan: https://www.deathreadiness.com/podcast/49
Revocable Trusts. Listen to Jill’s episode explaining what revocable trusts do, when they can be useful, and why having one doesn’t automatically mean your estate will avoid probate. Episode 19: Why You Need (or Don’t Need) a Trust: https://www.deathreadiness.com/podcast/episode-19-how-to-know-if-you-need-a-trust
Sample Children’s Trust Language. Download the sample language discussed in this episode showing how Jill would draft a trust under a Will to coordinate with a parenting plan’s life insurance requirement. https://drive.google.com/file/d/16WSPUWRc4T1tFEgRUAP13LWPaGHYqRm_/view?usp=drivesdk
Work With Jill. If you live in Tennessee and want to make sure your estate planning documents, beneficiary designations, and other pieces of your plan actually work together, learn more at https://www.deathreadiness.com/estate-planning-solution
Connect with Jill:
Website: DeathReadiness.com
Email: jill@deathreadiness.com
Learn more about Jill’s solutions
Subscribe to the Death Readiness Dispatch!
Ask a question for Tuesday Triage
Did you enjoy this episode? Share it with someone you care about.
-
What happens when a court order tells you to do something your life insurance beneficiary form doesn’t seem to let you do? That’s exactly the problem I ran into when I tried to fulfill the life insurance requirement in a divorced client’s parenting plan for her minor children. I’ll show you where divorced parents can get stuck, what can go wrong when a minor child is named directly as a beneficiary, and how I would draft an estate plan to make sure the whole thing actually works.
Welcome to The Death Readiness Podcast. This is not your dad’s estate planning podcast. I’m Jill Mastroianni — estate planning attorney, death readiness guide, and your translator for wills, trusts, probate, and the conversations most families avoid. If you’ve been wondering things like, ‘Can a trust protect what I leave to my children?’ ‘What happens if I give someone power of attorney over me?’ and ‘How can I help my parents while respecting their independence?’ You’re in the right place.
When I was a kid, I remember asking my mom about life insurance. I suppose I was always destined to be in this line of work. I wanted to know if she and my dad had any life insurance. My mom was so smart. I grew up in the ’80s and ’90s, so I know she wasn’t off to the side asking ChatGPT for answers and then pretending they came from her. She just had so much knowledge in her head, including about things that had absolutely nothing to do with her profession. She was a kindergarten teacher.
I remember when O.J. Simpson was acquitted, I asked my mom how Ron Goldman’s family could still sue him. Why wasn’t that double jeopardy? I was thirteen at the time and my mom explained to me the difference between a criminal case and a civil case.
How did she know that? Anyway, I grew up believing I could ask my mom pretty much anything and she would know the answer. So, of course, at some point I asked her about life insurance. Because even as a kid, I worried about what would happen to me and my brother if something happened to one or both of our parents.
She told me that both she and my dad had life insurance. And she explained that she had life insurance even when we were young and she was only working part-time. My dad may have been the primary earner, but my mom understood something really important: her death would have had a financial impact on our family, too.
Someone would still have needed to take care of the young children and do all the things she did to keep our household running. Replacing even some of what she did would have cost money.
My mom died in 2012, and she actually still had a small life insurance policy when she died. The next year, I bought my first house, and my dad gave me the proceeds from that policy to put toward my down payment.
I wasn’t a little kid anymore. I was 30 years old and I had just started practicing law. And yet, somehow, through my dad’s generosity, my mom was still taking care of me.
That’s what life insurance is supposed to do. It’s money you put in place today because you know that if you die, someone you love may still need to be taken care of tomorrow. And that brings me to the focus of today’s episode.
If you’re a divorced parent with minor children, you probably have a parenting plan with your ex-spouse. A parenting plan is basically the document that sets the rules for how you and your ex are going to parent your children after the divorce. It can address everything from parenting time and decision-making to child support and, sometimes, life insurance.
And that last piece—life insurance—is what I want to talk about today. Because your parenting plan may specifically require you to maintain life insurance to protect your children if you die before your child-support obligation ends.
The idea makes perfect sense. The problem is that requiring life insurance and creating a clear plan for what happens to that money are two very different things. And there’s a provision in Tennessee’s form parenting plan that I think illustrates that problem perfectly.
I do estate planning for divorced and single parents pretty regularly. And divorce is one of those big life events that should make you pull out your estate plan and take another look at it. I did a podcast episode a while back about the estate planning changes you should consider after a divorce, and I’ll link to that episode in the show notes. But today, I want to zoom in on one very specific issue: life insurance.
And even though I’m going to use Tennessee’s form parenting plan as my example, this isn’t necessarily a Tennessee problem. If you’re divorced, you have minor children, and you have a parenting plan or divorce agreement that requires you or your former spouse to maintain life insurance, I want you to actually pull it out and read what it says.
There may be a big difference between what that document tells you you’re required to do and how you actually accomplish it. Now, I’m an estate planning attorney, not a family law attorney, so I’m not going to tell you how to negotiate your parenting plan or what should or shouldn’t be included in your divorce agreement. What I am going to talk about is what happens when a requirement in a parenting plan runs straight into estate planning.
And that’s exactly what happens with Tennessee’s form parenting plan. I’ll link to the form in the show notes if you want to see it for yourself. If you look at Part III, Section E, you’ll find a short paragraph titled “Life Insurance.”
It’s just two sentences. But those two sentences create a surprising amount of estate planning uncertainty. I’m going to read them to you, but first, there’s one thing I want to acknowledge. The form itself uses “mother” and “father” and “his/her.” In other words, it contemplates parents as only a man and a woman, which does not reflect every family. And, that’s frustrating. But I’m going to read the language essentially as it appears on the form because the wording itself is important to what I want to show you.
Here’s the first sentence:
“If agreed upon by the parties, the”—and here you check a box for mother, father, or both—“shall insure his/her own life in the minimum amount of”—and then there’s a blank for the dollar amount—“by whole or term insurance.”
Very quickly, term life insurance covers you for a set period of time, maybe 20 or 30 years. Whole life insurance is designed to stay in place for your entire life and also builds cash value, which is one reason it’s generally much more expensive. I have term life insurance. Mine is designed to cover me until I’m 60.
For purposes of what we’re talking about today, I’m not particularly concerned about whether the policy is whole life or term life. I care that the required amount of insurance is actually in place for the period the parenting plan requires it.
So maybe your parenting plan says you have to maintain a $1 million life insurance policy. Or your ex-spouse does. Or both of you do.
Then we get to the second sentence: “Until the child support obligation has been completed, each policy shall name the child/children as sole irrevocable primary beneficiary with the”—and here you check either “other parent” or fill in someone else’s name—“as trustee for the benefit of the children, to serve without bond or accounting.”
That’s it. Two sentences. And at first glance, you might read that and think, Okay. I get it. Keep life insurance in place, make sure the money is for the kids, and have an adult manage it for them. Conceptually, I get it. But now I want you to imagine that you’re the parent who has to actually implement those two sentences.
You log into your life insurance account. You click “change beneficiary.” And now you have to figure out what, exactly, you’re supposed to do. That’s where things start to get messy.
If you’re a Tennessee parent who has been through a divorce, and this episode has you wondering whether your parenting plan, beneficiary designations and estate planning documents actually work together, I can help you figure that out. You can learn more about working with me at DeathReadiness.com/solutions. That’s deathreadiness.com/solutions.
Before I tell you what bothers me about this life insurance provision, let me tell you what I like about it. I like that it recognizes that life insurance can be really important when you have minor children. And that’s true whether you’re married, divorced, or raising kids on your own. If a parent dies while their children are still young, the financial impact can be enormous. Life insurance can provide some financial stability at a time when everything else in that child’s life may suddenly feel very unstable. So I completely agree with what this parenting plan is trying to accomplish.
My problem is with the instructions it gives you for accomplishing it. Let’s look at these two sentences of the life insurance provision separately. The first sentence essentially says: one or both parents will maintain a certain amount of life insurance until the child support obligation ends. That makes sense to me.
Maybe the requirement is $250,000. Maybe it’s $1 million. Whatever amount the parents agreed to, the point is that the coverage needs to be there if the parent dies while the obligation is still in effect. So that first sentence? I’m good with it.
It’s the second sentence where I start having problems. Remember what it says: the child is supposed to be the “sole irrevocable primary beneficiary,” with the other parent—or another person—“as trustee for the benefit of the child.”
And this is where the estate planning lawyer in me starts asking questions. What trust? Where are the terms of this trust? What exactly is the trustee allowed to do with the money? When does the child get control of the money? And perhaps most immediately: how, exactly, are you supposed to translate that sentence onto an actual life insurance beneficiary designation form?
Because the form from the insurance company may not give you a little box that says:
“I’m creating a trust. My child is the beneficiary, but my ex-spouse is trustee for my child pursuant to Section III(E) of my parenting plan.”
In fact, I feel pretty confident saying this: Whoever drafted these two sentences was not sitting in front of an actual life insurance beneficiary designation form when they did it. And I know that because I’ve got a life insurance form sitting in front of me.
While I was preparing for this episode, I logged into my own life insurance account and pulled up my beneficiary designation form. My life insurance is through Protective, and I can change my beneficiary designation online. Not every insurance company’s beneficiary designation is going to look exactly like this one, but this gives us a real form to work with.
So let’s create a hypothetical. Let’s pretend I’m divorced. My ex-husband is Stephen, and we have one minor child, Oliver. And let’s pretend my parenting plan contains the exact language we’ve been talking about: Oliver must be the sole irrevocable primary beneficiary, with Stephen as trustee for Oliver’s benefit.
I log into my life insurance account. I click “change beneficiary.” The first question asks me to choose the beneficiary type. I get four choices: Person. Company. Trust. Or estate of insured.
Well, the parenting plan tells me that Oliver is the beneficiary. Oliver is a person. So that seems easy enough. I choose person. Then I enter his information: is name, address and date of birth. And because we’re keeping this hypothetical simple and Oliver is my only child, I say he gets 100% of the proceeds.
So far, so good. Then I get to a box asking whether Oliver is a minor. He is, so I check it. And this is where Protective does something that I really appreciate. It stops me. Instead of letting me click through and potentially create a problem, a warning appears in bold. And I’m going to read this one to you because it identifies exactly the problem I want you to understand.
It says: “NAMING A MINOR AS A BENEFICIARY: Please note that if a beneficiary is a minor at the time of death of the insured, it may be necessary to delay the payment of the death benefit until a court appoints a guardian to manage the minor's assets. Before naming a minor as a beneficiary, we recommend consulting an attorney about your options, such as creating and naming a trust or designating a custodian for the minor's assets under your state's Uniform Transfers to Minors Act (UTMA).”
So think about what just happened. My court-ordered parenting plan told me to name my minor child as the beneficiary. And my life insurance company is now warning me about the potential consequences of naming my minor child as the beneficiary.
This is exactly the disconnect I’m talking about. And Protective doesn’t just warn me. It actually gives me another option. It asks whether I want to leave Oliver as the beneficiary or instead name a custodian under the Uniform Transfers to Minors Act, usually called UTMA.
UTMA is basically a way to leave money or other property to a child while naming an adult to manage it for them until they reach age 21. That adult is called the custodian. You don’t have to create a separate trust—the law provides the rules for how the custodian holds and manages the money for the child.
This is actually a useful option to know exists. If I already have a Will with a properly drafted trust for Oliver, I can coordinate my beneficiary designation with that estate plan so an adult can manage the money for him.
But what if I haven't done my estate planning yet? I certainly don't love the idea of naming Oliver directly and potentially requiring a court proceeding before someone can manage that $1 million for him. So if I were presented with these two choices, I would choose the UTMA option. Maybe I name my best friend Lauren as custodian.
And then, and this part matters, I tell Lauren. “Lauren, I have a $1 million life insurance policy with Protective. If something happens to me, I’ve named you as custodian to manage that money for Oliver.” Now, is that my ideal long-term estate plan? No. Under the assumption we’re using here, Oliver ultimately gets control of that money at age 21. And personally, I don't love the idea of handing a 21-year-old a check for $1 million. But as a temporary solution for a parent who hasn't done more comprehensive estate planning yet, it's a pretty useful tool to know about.
Okay, let’s get back on track and bring Stephen and our parenting plan back into the picture. I’m not simply trying to figure out a reasonable way to leave money to Oliver. I have a court order telling me what I'm supposed to do. It says Oliver is the beneficiary and Stephen is the trustee. Protective is offering to let me name a custodian. Those aren't the same words.
So what do I do? Do I name Stephen as Oliver’s custodian? But the parenting plan doesn't say Stephen should be the custodian. It says he should be the trustee. And if I’m the person sitting at home trying to follow my court order, I might reasonably be thinking:
What’s the difference between a trustee and a custodian?What is the Uniform Transfers to Minors Act?If I choose this option, am I actually complying with my parenting plan?Am I supposed to call the insurance company and ask them?
And remember: I’m not trying to do anything complicated here. I’m just trying to follow the instructions in my parenting plan.
Okay. Maybe I chose the wrong beneficiary type. Let’s back up. Instead of naming Oliver as the beneficiary, what if I name Stephen? Well, that doesn’t feel right either. The money isn’t for Stephen. The money is for Oliver. Stephen is just supposed to manage it for him.
So let’s go back to those four beneficiary choices. Person. Company. Trust. Estate of insured. There’s an option for trust. The parenting plan says Stephen is supposed to be a trustee. Maybe that’s the answer. I click “trust.” And now the insurance company wants the name of the trust, the date of the trust, and a tax identification number.
Wait. What trust? My parenting plan told me Stephen should serve as trustee. It didn’t actually create a trust for me to enter on this form. And this is the point where I can imagine a lot of people saying, You know what? I’ll deal with this later. And then they close the browser.
And that’s the piece that bothers me. If we’re going to require a parent to maintain life insurance for a child, we should also give that parent a workable way to actually do it.
So when I’m doing estate planning for a parent with minor children who has been through a divorce, I always ask to see the parenting plan. I want to know whether there’s a life insurance requirement in there, because I don't want the estate plan I create to inadvertently conflict with an existing court order.
And then we can actually build a plan that makes the pieces work together. Now, there are different ways to do that. You could potentially use a revocable trust. But in Tennessee, I don't generally recommend that every young parent create and fully fund a revocable trust simply for the purpose of avoiding probate.
Young families tend to be moving pretty quickly through life. They're buying and selling houses. Opening and closing accounts. Changing jobs. Acquiring new assets. And if your goal is to avoid probate entirely with a revocable trust, you have to keep paying attention to how those assets are owned as your life changes. For many of my Tennessee clients, I don't think that additional maintenance is necessary just to avoid a probate process that, in my experience, is relatively manageable. And, if you want to learn more about revocable trusts and what they do, I’ll link to a helpful episode in the show notes.
For today, let's make me the client. Jill Mastroianni is divorced from Stephen Mastroianni. We have two minor children, Oliver and Sylvie, and my parenting plan requires me to maintain life insurance for their benefit, with Stephen serving as trustee. Now, you’ll notice I just gave Oliver a sister. That’s intentional. I’m going to give you the actual drafting language I would use, and I want it to be useful if you have more than one child, because that adds just a little more complexity to the drafting. So, for the rest of our example, we have Oliver and Sylvie.
So in my Will, I create a separate Article called the Mastroianni Children’s Trust. And this time, when I use the word “trust,” I’m actually going to create one within my Will. I’m going to tell you what this trust does and how it solves the problem we’ve spent this episode working through. But I am not going to make you listen to me read an entire trust provision.
I’ll put the actual language in the show notes so you can download it and read it for yourself. For now, I just want you to listen to how the pieces fit together. Here’s the first sentence:
“I am required, pursuant to the Agreed Permanent Parenting Plan Order entered into by and between me and STEPHEN MASTROIANNI (the ‘Parenting Plan’), to insure my life in the amount of one million ($1,000,000) dollars until the date that the youngest of our living children, OLIVER MASTROIANNI and SYLVIE MASTROIANNI, attains eighteen (18) years of age (the ‘Termination Date’).”
Okay, let me translate what I just did. I connected the Will directly to the parenting plan. I identified the exact obligation I’m trying to satisfy: $1,000,000 of life insurance for Oliver and Sylvie until my youngest child turns 18.
In the written document, I put the term “Parenting Plan” in parentheses after the full name of the Agreed Permanent Parenting Plan Order. And after the language describing the date my youngest child turns 18, I put the term “Termination Date” in parentheses.
Those are called defined terms. They give me shorthand I can use throughout the rest of the document. So instead of repeating “Agreed Permanent Parenting Plan Order” every time, I can just say Parenting Plan. And instead of repeatedly saying “the date my youngest child turns 18,” I can just say Termination Date.
That may sound like a tiny drafting detail, but this is what good drafting is supposed to do, remove ambiguity. Then I make the purpose explicit. I say: “This Article is intended to comply with the provisions of the Parenting Plan.”
There should be no mystery about why this trust exists. Remember, the parenting plan told me that the life insurance is for my children and that Stephen is supposed to serve as trustee. So now I’ve created the actual trust that tells Stephen what his job is.
And I’m not going to read you the rest of it—you can download that language from the show notes—but I do want to tell you what it accomplishes. First, it tells Stephen what he can use the money for. He can make distributions for Oliver and Sylvie’s health, education, maintenance and support. If you’ve ever seen the acronym HEMS, H-E-M-S, in connection with a trust, that’s what it stands for: health, education, maintenance and support. It’s very common trust language.
Second, the trust tells Stephen how long his job lasts. His job lasts until the Termination Date, when our youngest child turns 18. And importantly, the document also tells us what happens to any money that's left.
In my draft, the remaining proceeds move into another trust created under my Will for Oliver and Sylvie, with a different trustee. So the fact that my child turns 18 does not mean I suddenly hand an 18-year-old whatever is left of a $1,000,000 life insurance policy.
Third, the rest of the Will gives us a backup plan. What if Stephen survives me but then dies before Sylvie turns 18? The Will contains provisions addressing who steps in when a trustee can no longer serve. These are the kinds of questions that the two sentences in the parenting plan leave unanswered.
But there’s still one very practical question left: How the heck do I fill out the life insurance beneficiary designation form? Remember the four choices Protective gave me? Person. Company. Trust. Estate of insured. Earlier, we tried “person” and ran straight into the problem of naming a minor. We considered naming Stephen, but Stephen isn’t supposed to receive this money for himself. We tried “trust,” but the form wanted information about an existing trust.
So this time, I choose estate of insured. I’m the insured. My estate is the beneficiary. And that means the proceeds that are payable to my estate are governed by my Will. And now the Will knows exactly what to do with them.
All of the complexity lives in the estate planning documents where I, as the lawyer, can deal with it. The client’s job becomes really simple: choose “Estate of Insured” on the beneficiary designation form. And this is what I mean when I talk about making all the pieces of an estate plan work together. The parenting plan creates the obligation. The Will creates the trust that carries it out. And the beneficiary designation form gets the money to the document that contains the instructions.
Now we have an estate plan that can actually be implemented. There is, however, one important caveat before you run off and change your life insurance beneficiary to your estate. This part can be very state-specific.
In Tennessee, I’m comfortable with this approach because Tennessee law provides protection for life insurance proceeds from claims of creditors in this context. That means I’m not making my life insurance proceeds accessible by creditors of my estate by directing life insurance through the probate estate. But if you live outside Tennessee, do not assume your state treats life insurance proceeds the same way. You need to look at the law in your state before using this approach.
And that brings us back to the bigger point of this entire episode: The beneficiary designation cannot be considered in isolation. The parenting plan, the life insurance policy and the estate planning documents all need to be telling the same story.
When I was a kid, I asked my mom whether she and my dad had life insurance. And my mom understood exactly what life insurance was supposed to do. It was supposed to take care of us if she couldn't.
That’s really the whole point. Your child does not care whether the money gets to them through a beneficiary designation, a trust created under your Will, a revocable trust, or some other legal mechanism. They just need the plan to work.
And if you’re divorced, you may have an added layer: a court order telling you that you have to maintain that life insurance for your children. So don't stop at, “I have the policy.” Pull out your parenting plan. Look at the life insurance provision. Then pull up your actual beneficiary designation and ask:
If I died tomorrow, would this money actually go where my parenting plan says it should go? Who would control it? And is there a legal document somewhere telling that person what to do with it?
When I was a kid asking my mom about life insurance, I think what I really wanted to know was: Will we be okay if something happens to you? And without using those words, her answer was yes. She had thought about it. She had planned for us.
Life insurance is about taking care of someone tomorrow, even if you aren't there to do it yourself. The estate planning is what makes sure that care actually reaches them.
If you live in Tennessee and you’ve been meaning to get your estate plan done, or you have documents, but you’re not entirely sure they still reflect your life, I’d be happy to help. My estate planning process is designed to help you understand not just what documents you need, but how all the pieces of your estate plan work together. You can learn more and take the next step at DeathReadiness.com/solutions. That’s deathreadiness.com/solutions.
Thanks for listening today.
This is Death Readiness, real, messy and yours to own. I’m Jill Mastroianni and I’m here to help you sort through it, especially when you don’t know where to start.
Hi, I'm April, Jill's daughter. Thanks for listening to The Death Readiness Podcast. While my mom is an attorney, she’s not your attorney. The Death Readiness Podcast is for educational and entertainment purposes only. It does not provide legal advice. For legal guidance tailored to your unique situation, consult with a licensed attorney in your state. To learn more about the services my mom offers, visit DeathReadiness.com.
