I've worked hard to ensure that the kids will be well looked after in case of my very own untimely death. The last thing in the world I'd want is for my careful intends to fall flat. I want the kids to have the safety net I create for them.
If you've life insurance and young children, it's critical that you t comprehend the role of the custodian as it pertains to the insurance policy death benefits you intend to pass along for your survivors.
When you have young kids, designating a grownup custodian for the life insurance coverage is part of planning the unexpected.
A custodian is the person who will manage the distribution of life insurance coverage proceeds to your beneficiaries who are minors. So if you have young kids as beneficiaries, it's a big responsibility to mention a custodian. Knowing a custodian's role and the way to pick the best one for your situation can seem daunting – that is the key reason why we're going to explain much more about this important process.
What is a custodian?
A custodian is really a individual who guards, protects, or maintains (not all that different from an Avenger if you feel about it-) financial assets. In the context of insurance, the function from the custodian would be to “guard and maintain” the assets left to your minor child until he or she reaches age majority. For example, when someone applies for any Haven Term policy, issued by MassMutual, if he or she indicates that their beneficiary is a minor, we require a custodian to become named. In the event of your death, when your child reaches the age of majority, the custodian is needed to turn the assets over to the child. Age majority (also sometimes called “coming of age”) is 18 in many states, but can be up to 21.
A large amount of responsibility comes with this nine-letter word. Think about these powers which are held through the custodian of the life insurance coverage:
- Manage life insurance proceeds for minor children
- Use the policy proceeds for the benefit of and in the best interest from the minor (for items such as tuition, educational expenses, medical expenses, etc.)
How is really a guardian different from a custodian?
While they may sound similar, there are several key differences between your role of a custodian and that of the guardian. A guardian functions as something of a substitute parent (in the event both parents died) and is usually named in a will. A guardian might have legal custody on the minor child, so her influence extends past the handling of the policy payout. You'll be able to name a person as both a custodian along with a guardian.
When do you name a custodian?
You need a custodian if you have minor children and assets that may pass for them.
Under certain state laws, a minor might not be in a position to legally own financial assets in their own name. This turns into a problem when you name a small child like a life insurance beneficiary within policy or in your will.
If you have minor children, a custodian helps you make sure that insurance proceeds or other inheritance benefits (typically from a will) can be transferred according to your wishes. The Uniform Gets in Minors Act (“UTMA”) allows for proceeds left to some minor to become maintained with a custodian until the minor reaches age majority.
One key point that is sometimes forgotten: even when there is a surviving parent, she or he does not automatically end up being the custodian for that purposes of your life insurance plan, even if they are named because the guardian of that child inside a will.
What happens if you don't name a custodian?
Maybe you're torn between which of the siblings to choose or maybe you just don't want to hurt anyone's feelings. Would not it be easier to not choose anyone? The short response to that question is no. Despite what could be an uncomfortable decision for some, failing to name a custodian might have serious consequences.
If your minor child is known as like a beneficiary to an insurance policy or other assets, and you have not designated a custodian, your son or daughter may not be able to access those assets until reaching age majority. This result is precisely the opposite of what you intended whenever you chose to purchase insurance or leave assets for that benefit of your minor child, right?
Another results of not naming a custodian is that a probate court may appoint a guardian for the child and permit that guardian to be the custodian of assets. Nobody wants this result because it is time-consuming and dear, and leaves a critical decision up to the courts.
Who are you going to name as custodian?
Now comes the (potentially) hard part for any parent: selecting a custodian. As you can see in the role of a custodian and also the importance of that person's work in your son or daughter's life, this isn't an insignificant decision.
Your choice is, obviously, personal, so that as unique as your family. Nevertheless, some guidelines is a good idea in the process of selecting a custodian. But it really all starts with just one word: Trust. Do you trust they using the responsibility of looking out for something as priceless as your child's wellness?
A number of candidates may come in your thoughts right away. So, here are a few questions you are able to ask yourself (together with your partner) to assist limit the list: Is this person knowledgeable with regards to finances? Will she or he be comfortable handling financial decisions on behalf of your child? Does this person have the time to handle responsibility fully? Does your chosen custodian want the responsibility? Some do not, and it is easier to realize that up front.
How to inquire about someone to be your child's custodian
Okay, therefore it is time for you to pop the question. How exactly would you ask anyone to become your child's custodian? After all, accepting the responsibility is just as big a decision as selecting a custodian.
Asking anyone to be considered a custodian is not a beat-around-the-bush kind of question. It is best to be direct here. With something of this importance, make sure you clearly state what you are asking, what it really entails, and why you have chosen this individual. Require a script? What about this:
“Alice, Mike and I have something vital that you ask you. We've given this a lot of thought, and we'd like you to think about serving as a custodian for little Bobby and Cindy. This means that if Mike and that i both pass away before Bobby and Cindy reach age 18, you would be accountable for managing the money that we're leaving for them until they come of age. We're asking you because we trust you, realize that you would act within the kids' best interests, and realize that you understand how to handle money. We all know this is a problem, so please take a moment to consider it.”
Not so difficult, right? Anticipate to answer questions and wait for bit for an answer. Oh, and, you realize, make use of your and your children's actual names.
How do you name a custodian?
The logistics of naming a custodian for any life insurance coverage are simple. Once you advise your life insurance carrier that you'd like to mention a custodian and set up a merchant account underneath the UTMA, the company will provide you with the necessary forms. Your estate planning attorney can assist with custodianship issues associated with other assets.
It is nice practice to review your decision from time to time. Situations may change, and you'll no more want the custodian you selected, or that custodian may no longer want the duty. Or even an older child has reached the age of majority and also you would prefer that she or he become the custodian for a still minor sibling. Whatever life throws your way, consider the way it might affect your custodian decision and update/review your plan regularly.
Today's planning is tomorrow's peace of mind
A big part of being a parent is ensuring your children feel loved, cared for and safe at all times. That's why you're looking at life insurance coverage. And maybe a will. And probably the reason why you just took the time to read this post. Now you understand what a custodian is, how they work and how to select one, you can go on and relax. Just kidding, you've kids younger than 18. You won't be relaxing not less than another decade or two.