How do I designate my ex as the "trustee/custodian" of my life insurance proceeds to cover the child support total I owe?

[ojames]

Hi, I need a life insurance policy to cover the child support total I am to pay, I read that's pretty standard in divorce settlement agreements. It says our kid is to be the beneficiary and my ex is to be the trustee of the insurance proceeds. But when I called my life insurance company they said I can only make someone a beneficiary, not a trustee. They didn't go for the trustee concept which sounded odd because apparently it's a common thing. Can anyone tell me how to get that done?

I actually already have a good term life insurance policy that I've had for years and that easily covers the child support total, and my kid is the beneficiary now. But can I use that policy for this, e.g. by naming them both beneficiaries (my ex a beneficiary only for the child support total?), some way to make my ex the "trustee/custodian" on my existing policy, or do I have to get a new one just for this reason? I'm hoping I can use my existing policy because I need to do this as cost-effectively as possible given my post-divorce financial situation.

Am I just getting hung up on the terminology? My ex is already the "custodial parent," and if I die before my kid turns 18 won't that automatically make my ex the "trustee" of the money he receives because he is my beneficiary? Thanks

 

[ativyl]

@ojames OK let me try a bit here. What you are asking for is the benefits of a trust without paying for it. The general customer service rep isn't going to give you a good answer. Some insurance company (NYLife, Allianz, Mass Mutual...) own trust companies. They can provide trust services. Most companies selling you a small term policy cannot and essentially none of them wants to get involved in this for a small amount of money (small here meaning low 7 figures or less).

1. If you trust your X you can just make her the beneficiary to match the amount of remaining insurance. You can also make them the custodian of a UTMA account though that creates a lot of headaches.
2. If you don't trust your X and the court will let you get away with it you can make the minor children the beneciaries. You can appoint a custodian who can make withdraws. This should be a trusted friend who agrees in advance to do this and who you think will be willing to deal with your X and your kids. The insurance company will hold the money in an interest bearing account and pay out when the custoidan asks or they reach the age of majority (18 or 21 depending on state). (https://www.investopedia.com/terms/@alinaalgy.asp). This avoids the need (and protections) of a formal trust. Your friend can potentially rip your kids off.
3. You can hire a trust company (fairly cheap to be in waiting) and name them the beneficiary. Then when the money gets paid out they get involved. This can be structured a whole bunch of ways. This can have advantages from an estate perspective if you are wealthy.

 

[ativyl]

@ojames I wasn't trying to insult you. I was trying to tell you why you were getting bad information from the insurance company customer service rep.

if I die, it seems as if I'm already meeting the obligation, my ex gets the money until my kid is 18, no?

No without an explicit custodial statement the insurance company will hold the money till they turn 18/21. She won't see a nickle. That could be a positive from your standpoint if you can get away with it.

As for the custodian, do you have a trusted friend?

 

[ojames]

@ativyl Ah, thanks. Is the only way to get the explicit custodial statement with a trust, any other option there?

 

[ativyl]

@ojames No you can just file a custodial statement. Then the insurance company holds the money with the custodian having the right to pull all or some of it at any time for any reason with no supervision.

You want limitiation beyond that, you need a trust.

 

[ojames]

@ativyl Can you tell me how to file a custodial statement? Is it me writing it out, stating or designating the friend? And the insurance company has to take it along with my beneficiary form?

 

[ativyl]

@ojames Generally you call customer service and say "I'd like to fill out the custodian form to set up the policy as a UTMA". They send you the form... This may be a generic "Transfer of ownership" or it could be specific.

The boring small print: https://content.naic.org/sites/defa...fehtg_Custodial_or_Safekeeping_Agreements.pdf

 

[ojames]

@ativyl Hey, so my existing term policy is 500+k and goes until 2029, I think. I do not want my ex to have it, only my kid. My kid reaches majority in just over a year. And since my divorce agreement says that my wife is to be named the custodian on a life insurance policy that covers my child support total, which is only one year till majority, I assume I can't have two custodians on my big existing policy, so maybe I should get a short term policy just for this last year till majority, and that way my ex can be the custodian for only the one year's worth of child support and not the custodian of my big policy?

 

[ativyl]

@ojames Assuming this is the only child ... Yes you could just give her a small policy. Or just send her a copy and change beneficiary after. At 1 year you don't really need to worry the kid will get the money soon enough anyway.

I assume I can't have two custodians on my big existing policy

What you want is her not to be the custodian. The custodian could take all the money and your child would need to sue her for misappropriation which isn't going to happen...

 

[ojames]

@ativyl Well, I'm referring to the divorce settlement agreement which says I have to make my ex the custodian of the policy that covers the year of child support. But you're right otherwise, I do not want my ex to be the custodian of my big existing policy.

What did you mean by at one year I don't need to worry? Are you referring to my bigger existing policy or if I get a new small one just for the child support coverage?