How to Determine Your Life Insurance Custodian

August 1, 2018

In an earlier blog, we discussed some of the things that you should consider when selecting the beneficiary for your life insurance policy. One of the points we made was not naming a minor as your beneficiary. However, if you have a young child who you would like to leave a legacy for, this doesn’t mean that you have no options. Instead, as we mentioned previously, you would need to either set up a trust or name a life insurance custodian. But what does that mean?

What is a Life Insurance Custodian?

As its name indicates, a custodian is someone who has responsibility for or looks after something. In the life insurance world, this means someone who will manage the distribution of financial assets from a life insurance payout.

A custodian is not the same as a legal guardian. A custodian does not have legal custody over the minor, unlike a legal guardian. Rather than functioning as a surrogate parent, a custodian merely handles financial assets.

Life insurance custodians exist because life insurers legally cannot pay a death benefit directly to a minor. Depending on state law, the child must be over the age of 18 or 21 to receive the benefit. Since many parents wish to leave a legacy for their children to cover funeral costs or attend school, a life insurance custodian helps the child to access their benefits more quickly than they otherwise could.

How to Select a Custodian

Much like a beneficiary, there are several important details you should keep in mind when selecting a custodian for your beneficiary:

  • Trust. A custodian plays an incredibly important role in the life insurance process and in the child’s life beyond. This person must be someone that you trust to handle the distribution of your child’s finances and work with them through the process.
  • Caring for your child. Similar to the above, the custodian should be someone who has your child’s best interest at heart.
  • Financial knowledge. The financial details can sometimes get confusing, so it would be best to name a custodian who understands finances (or would be willing to learn) and would be comfortable making financial decisions on behalf of your beneficiary.
  • Time. You want to make sure that this individual has the time to devote to this responsibility. Depending on your child’s age and the type of death benefit, it could potentially be a very long process to completely provide the payout. It may be morbid to think about, but you should also consider whether this individual is likely to pass away before the benefit is paid or your child reaches the age of majority.
  • Wanting the responsibility. Much like purchasing a life insurance policy for someone else, you should not surprise someone with the responsibility of life insurance custodianship. This is a large responsibility, and you should make sure that your potential custodian is willing and prepared to take it on.

Before you ask someone to be your child’s custodian, make sure that you completely understand the requirements and responsibilities of the role, and thoroughly communicate them to your custodian. If you need more information, your life insurance agent would be happy to discuss this in further detail with you and your custodian of choice.

Naming a custodian is thankfully a fairly simple process. Once you have determined who your custodian will be, just inform your life insurance provider that you would like to name a custodian, and they will provide you with the necessary forms.

About National Catholic Society of Foresters

At National Catholic Society of Foresters, we pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. Sales from our financial services products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs. Our portfolio is extensive, ranging from various life insurance policies to IRA’s to support your financial needs no matter what stage of life you’re in. For more information, contact our friendly experts today at (855) 804-7424.