How can I safeguard a minor child’s life insurance proceeds and restrict my spouse’s access under North Carolina law?

Detailed Answer

Life insurance proceeds payable to a minor raise unique issues in North Carolina. If a child is named directly as beneficiary, the proceeds cannot go into the child’s hands until the court approves a structure to manage the funds. Without careful planning, your spouse—if appointed custodian or guardian—could access those proceeds freely. To protect your child’s inheritance and limit spousal control, use one or more of these strategies under state law:

1. Name a Trust as Beneficiary

Establish either an inter vivos (living) trust or a testamentary trust in your will, then designate the trust as the policy’s beneficiary. A trustee you appoint holds and distributes the proceeds according to your instructions. Key benefits:

• Incorporate a spendthrift clause under N.C. Gen. Stat. Chapter 36C, Article 5 to prevent creditors or any beneficiary—including a spouse—from accessing trust assets prematurely.
• Use N.C. Gen. Stat. § 28A-25-11 to create a testamentary trust that holds assets for minors until ages or milestones you set.
• Set distribution stages—such as one-third at age 18, one-third at age 21, and the balance at age 25—to ensure financial maturity.

2. Use the Uniform Transfers to Minors Act (UTMA)

Under N.C. Gen. Stat. Chapter 53, Article 8, you may name a UTMA custodian to receive life insurance proceeds for the benefit of a minor. By default, the custodian holds assets until the minor turns 18, but you can extend that to 21. To restrict your spouse’s access:

• Appoint a neutral third-party custodian rather than your spouse.
• Clarify in the beneficiary designation that the UTMA custodian has limited management authority and cannot distribute funds for non-support purposes.

3. Seek Court-Supervised Guardianship

If you want ongoing oversight, petition under N.C. Gen. Stat. Chapter 35A to appoint a guardian of the estate for your minor child. A guardian must file regular accountings with the clerk of superior court and spend funds solely for the child’s welfare, effectively limiting direct spousal control.

4. Update Your Beneficiary Designation Form

Whenever you buy or update a life insurance policy, submit a beneficiary designation form naming the trust or UTMA custodian directly. That ensures proceeds flow into the protective structure you choose, not to the child or spouse unfiltered.

Practical Checklist

• Review your life insurance policy’s current beneficiary designations.
• Consult an attorney to draft or amend a living trust or testamentary trust with spendthrift language (N.C. Gen. Stat. Chapter 36C, Article 5).
• Consider the UTMA option (N.C. Gen. Stat. Chapter 53, Article 8) and select a neutral custodian.
• Evaluate guardianship under N.C. Gen. Stat. Chapter 35A for court-supervised estate management.
• Define distribution ages and trustee or custodian powers clearly in all documents.
• File updated beneficiary forms with your insurer and keep copies of all executed agreements.

Call to Action

Protecting a minor’s life insurance benefits and preventing unintended spousal access requires careful planning under North Carolina law. At Pierce Law Group, our attorneys guide families through drafting trusts, UTMA custodianships, and guardianship petitions to secure your child’s financial future. Email us at intake@piercelaw.com or call (919) 341-7055 to schedule a consultation.