I have worked hard to ensure that my children will be well cared for in the event of my own untimely death. The last thing in the world I want is for my meticulous plans to fall flat. I want my children to have the safety net I create for them.
If you have life insurance and minor children, it is imperative that you understand the guardian’s role when it comes to the insurance benefits you wish to pass on to your survivors.
Designating a guardian is part of planning for the unexpected.
A guardian is the (trusted) person who will manage the distribution and custody of all financial assets designated by, for example, a life insurance policy or a will, to a child while he or she is still a minor.
It̵7;s a big responsibility, so knowing the role of a guardian and how to choose the right one can seem daunting… that’s exactly why we’re going to explain more about this important process.
What is a guardian?
A custodian is a person who guards, protects or maintains (not too different from an Avenger if you think about it…) financial assets. In insurance contexts, the guardian’s role is to “guard and maintain” any assets left to your minor child until he or she comes of age. For example, when an individual applies for a Haven Term policy, if he or she states that their beneficiary is a minor, we require that a guardian be named. In the event of your death, when your child reaches the age of majority, the guardian is required to hand over the assets to the child. The age of majority (also sometimes called “coming of age”) is 18 in most states, but can be as high as 21.
A lot of responsibility comes with this nine letter word. Consider these powers held by a guardian:
- Make withdrawals from the assets for the benefit of the minor (for things like tuition, education expenses, medical expenses, etc.)
- Manage the overall custodial account in the best interest of the minor (this is also known as a “trust relationship”)
- Buy shares, funds, bonds or other investment securities on behalf of the minor
How does a guardian differ from a custodian?
Although they may sound similar, there are some important differences between the role of guardian and guardian. A guardian acts as something of a surrogate parent (if both parents are deceased) and is usually named in a will. A guardian would have legal custody of a minor child, so her influence extends beyond handling an insurance payout. It is possible to name an individual as both guardian and custodian.
When do you name a guardian?
You need a guardian when you have minor children and assets that can pass to them.
Under some state laws, a minor may not be able to legally own financial assets in their own name. This becomes a problem when you name a minor child as a beneficiary under a life insurance policy or in your will.
If you have minor children, a guardian will help you ensure that insurance proceeds or other inheritance benefits (typically from a will) can be transferred according to your wishes. The Uniform Transfers to Minors Act (“UTMA”) allows earnings left to a minor to be retained by a guardian until the minor reaches the age of majority.
An important point that is often overlooked: even if there is a surviving parent, he or she does not automatically become the guardian for the purposes of your life insurance policy, even if they are named as the guardian of that child in a will.
What happens if you don’t name a guardian?
Maybe you’re torn between which of your siblings to choose or you just don’t want to hurt anyone’s feelings. Wouldn’t it be easier not to choose anyone? The short answer to that question is no. Despite what may be an uncomfortable decision for some, not naming a guardian can have serious consequences.
If your minor child is named as the beneficiary of insurance or other assets, and you have not appointed a guardian, your child may not be able to access those assets until he or she reaches the age of majority. This outcome is exactly the opposite of what you envisioned when you decided to purchase insurance or leave assets in favor of your minor child, right?
Another consequence of not naming a guardian is that a probate court may appoint a guardian for your child and allow that guardian to be the custodian of assets. No one wants this outcome because it is time-consuming and expensive, and leaves a crucial decision to the courts.
Who will you name as guardian?
Now comes the (potentially) difficult part for a parent: choosing a guardian. As you can see from the role of guardian and the importance of that person’s work in your child’s life, this is not a trivial decision.
Your choice is of course personal and as unique as your family. Even so, some guidelines can be helpful in the process of choosing a guardian. But it all really starts with a single word: Trust. Do you trust this person with the responsibility of looking out for something as priceless as your child’s well-being?
A number of candidates may come to mind immediately. So here are some questions you can ask yourself (along with your partner) to narrow down the list: Is this person financially savvy? Will she or he be comfortable providing investment advice and handling financial decisions on your child’s behalf? Does this person have time to fully handle the responsibilities? Does your chosen guardian want to be in charge? Some don’t, and it’s better to know that in advance.
How to ask someone to be your child’s guardian
Okay, so it’s time to ask the question. How exactly do you ask someone to be your child’s guardian? After all, taking on the responsibility is as big a decision as choosing a guardian.
Asking someone to be a guardian is not a common question. It is best to be direct here. With something of this importance, make sure you clearly state what you’re asking about, what it means, and why you’ve chosen this person. Do you need a script? How about this:
“Alice, Mike and I have something important to ask you. We’ve given this a lot of thought and we’d like you to consider acting as guardian for little Bobby and Cindy. That means if Mike and I both pass away before Bobby and Cindy reach 18, you would be responsible for managing the money we leave to them until they come of age.We are asking you because we trust you, know you would act in the best interests of the children and know you understand how to manage money. We know this is a big deal, so please take some time to think about it.”
Not that hard, right? Be ready to answer questions and wait a while for answers. Oh, and, you know, use your and your kids’ actual names.
How do you name a guardian?
The logistics of naming a guardian for a life insurance policy are simple. Once you’ve notified your life insurer that you want to name a custodian and set up a custodial account under UTMA, the company will provide you with the necessary forms. Your probate attorney can help with custody issues related to other assets.
It is good to review your decision from time to time. Situations can change and you may no longer want the guardian you have chosen, or the guardian may no longer want to be in charge. Or perhaps an older child has reached the age of majority and you would prefer that he or she become the guardian of a sibling who is still a minor. No matter what life throws at you, think about how it might affect your custody decision and update/review your plan regularly.
Today’s planning is tomorrow’s peace of mind
A big part of being a parent is making sure your children always feel loved, cared for and safe. This is why you are considering life insurance. And maybe a will. And probably why you only took the time to read this post. Now that you know what a guardian is, how they work, and how to choose one, you can go ahead and relax. Just kidding, you have kids under 18. You won’t relax for at least another decade or two.
About Raquel D’Apice
Raquel D’Apice is a stand-up comedian and writer who runs a parenting/humor blog called The Ugly Volvo. She lives in Jersey City with her husband and a 10-month-old baby who won’t stop grabbing her laptop cord.
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