Beneficiary Is Minor Child

[austin3515]

Mom & Dad divorce after having one child, now 3 years old. Dad dies after naming his 3 year old as his beneficiary.

Obviously, the 3 year old is not going to open a checking account, etc. nor decide between an IRA rollover and a cash distribution. Someone mentioned that perhaps the mother would need a financial guardian before the custodian should be allowed to make the checks payable to the mother. But perhaps the birth certificate would suffice??

Any thoughts on what to do here? Perhaps someone has read a good article?

[Kevin C]

Is it addressed in the plan document? Our VS document has the following in a paragraph titled Identification of Beneficiaries:

"If a distribution is to be made to a minor or incompetent Beneficiary, payments may be made to the person’s legal guardian, conservator recognized under state law, or custodian in accordance with the Uniform Gifts to Minors Act or similar law as permitted under the laws of the state where the Beneficiary resides."

[david rigby]

any help from prior discussions?

http://benefitslink.com/boards/index.php?/topic/49774-distribution-to-minor-beneficiary-and-fiduciary-obligation-to-minor/

http://benefitslink.com/boards/index.php?/topic/51842-deceased-participant-questions/

[SearchLight]

Tacking on to Kevin's point, the key things to know are where the child lives and how much money's involved. State law typically governs payments to minors, usually under UTMA or something similar. Most states will allow the plan to designate a custodian and make payment to that person on the child's behalf under certain conditions. You'll need to know what the state in question requires and any dollar thresholds the state sets where certain options (such as facility-of-payment) are no longer available.

The handful of times I've dealt with these situations, the plan has been able to make payment through the surviving parent. Sometimes it's been to a UTMA account the parent establishes on the minor's behalf, and sometimes it's been directly to the parent (something like Jane Doe, for John Doe, a minor) - varies by state. In one case, the child was a teen and able to take payment directly in her state. I've never been fortunate enough to have one where the participant formally designated a custodian for their minor beneficiary prior to death, but it would certainly simplify things if you can skip that step.

[My 2 cents]

It's all you can hope for that the participant would have properly named a beneficiary. The plan would usually provide a process for payments to a minor. Some sort of court procedure may be necessary if, for example, the applicable laws would not recognize a surviving parent as the default. If the participant did designate a custodian for a minor beneficiary, that would have taken place outside of the plan (but it would not be inappropriate for the participant to have set up a beneficiary designation under the plan that would coordinate with the outside custodial arrangement). That would seem less likely in the case of a divorce where the other parent has custody, since that would have been expected to take care of the situation.

[Peter Gulia]

If ERISA governs the plan, a fiduciary might get its lawyer's advice about the extent to which ERISA preempts State law. However, State law, even if not governing, might nonetheless be relevant if the plan refers to State law, or refers to a concept that is not found in Federal law.

Likewise, a fiduciary might get its lawyer's advice about the extent to which it is at least permitted, and perhaps required, to follow the plan's documents.

And if a plan's administrator has discretion in deciding whether to recognize a beneficiary's conservator, UTMA custodian, or other fiduciary, the administrator might consider its duty to exercise that discretion for the exclusive purpose of providing the plan's benefit to the beneficiary while incurring only reasonable expenses of plan administration.

[austin3515]

HEre's another take - it's hard to imagine there being an issue with having the guardian (parent in this case) get a guardianship appointment from a court?

[AMDG]

Hi.  If a payment is made to the custodian for the benefit of the minor in a UTMA/UGMA situation, should the 1099-R also name the custodian as the recipient?  If so, how does the minor obtain the tax benefits?  Just curious if anyone has looked into this. Thanks in advance. 

 

[JulesInCNY]

curious if anyone knows what the UTMA dollar limits are?  I can't seem to find anything out there.  I'm handling a distribution for a deceased participant with 3 children as default beneficiaries, 1 of which is still a minor (16).  the other 2 are over 21.  the mom signed paperwork as his guardian.  all 3 electing cash out of approx $2500 each.  the custodial carrier indicates in their instructions:  "XX will follow the UTMA guidelines set by the minor's state of residence to determine requirements.  A court appointed guardian or conservator of the minor's ... estate may be required.  If the child's estate is under the dollar amount set by the respective state UTMA requirements, the child's parent or guardian may sign the form, indicating their capacity to receive the funds in behalf of the child."  NY state if that helps.  thanks!