Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client wants to take care of young beneficiaries with her life insurance policy.  What’s the best way for her to do that?

Answer: In a perfect world, our clients would always create trusts to manage and distribute money for the benefit of young beneficiaries.  However, trusts cost money and substantial effort to create.  They are also costly and time-consuming to administer.

For many, trusts can be created inside of last wills to take care of children.  Such trusts are called testamentary trusts.  Some of our clients still are not candidates to create those because of the effort and cost involved.

To help create practical choices for taking care of money for young family members, the state governments came together to essentially create simplified trusts.  The first set of these rules were the Uniform Gifts to Minors Act (UGMA).  Since UGMA and its variations were enacted, the state governments came up with a new, improved version of the rules called the Uniform Transfers to Minors Act (UTMA).

Together, UGMA and UTMA accounts are referred to as custodial accounts.  Custodial accounts name a minor beneficiary and a custodian, who is likely to be a responsible adult.

Naming a custodial account the beneficiary of a life insurance policy might be the best practical choice when a client cannot or will not create a trust for the beneficiary of a minor.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.