You were named as Custodian — now what?

Your friend or loved one has written their revocable living trust — and they just named you as a custodian for a gift left to a minor or young adult. What does this actually mean?

Note that if you were named as an alternate custodian, then you will be asked to serve only if the person named as legal custodian is unable to, or declines to serve.

What is a Revocable Living Trust?

Like a will, a revocable living trust is an estate planning tool that provides instructions about how the trust’s creator (known as the “Grantor”) wishes to distribute certain property after they’ve passed away. If the trust contains instructions to give money or property to a beneficiary that has not reached the legal age of majority, it may also name an adult to act as the “Custodian,” who will be responsible for managing the minor’s inheritance until they are old enough to receive it directly.

What is a Custodian?

As noted above, a Custodian is a person named by the Grantor to hold a minor beneficiary’s inheritance until they are old enough to receive it directly. A Custodian may be named for two reasons: First, minors are legally prohibited from owning valuable property by law; second, minors may be financially irresponsible, and could spend their inheritance irresponsibly.

Custodianships created using FreeWill’s self-help tools follow your state's Uniform Transfers to Minors Act (the “UTMA”), which is a set of laws containing a set of standardized powers and responsibilities for Custodians. Broadly speaking, Custodians are responsible for managing the minor beneficiary’s inheritance and using it as appropriate to support the beneficiary’s education, upbringing, and health care. The age that the beneficiary must attain before they are allowed to hold the inheritance directly will be specified in the document that created the Grantor’s trust (known as the “Declaration of Trust”). When the beneficiary reaches that age, the Custodian turns over whatever remains of the inheritance to the beneficiary and the Custodianship ends.

What are a Custodian’s Duties Under the UTMA?

A UTMA Custodian’s primary duty is to manage the beneficiary’s inheritance sensibly, and for their benefit. In other words, Custodians may not use the beneficiary’s property for their own advantage, and must use reasonable efforts to preserve its value. It is also important not to mix the minor’s inheritance with your own property, so Custodians will typically create a separate bank account to hold it for the minor’s benefit. If the minor’s inheritance is substantial, it may be prudent to invest it, so that the property can grow (or at least keep pace with inflation). Custodians must keep records of any transactions made on the beneficiary’s behalf, so be sure to keep good records!

Custodians can engage accountants, lawyers and other professionals as necessary to carry out their duties, and use the minor’s property to pay a reasonable amount for such assistance. Under California law, Custodians are also permitted to periodically receive reasonable compensation for the work they’ve done, which will be paid out from the property they oversee. Note, however, that Custodians are not required to claim such compensation, and may decide not to.

Do I have to serve as Custodian?

No, being nominated does not obligate you to serve. When the time comes, you can decide whether to accept this responsibility or not. If you choose to decline, an alternate Custodian named in the trust can take over, and if no alternate is available, the Grantor’s Declaration of Trust may specify how a suitable Custodian shall be appointed. Please note that if you are already certain you do not wish to serve as Custodian, you should let the Grantor know, so that they can appoint someone willing.

What should I do now?

It’s important to talk to the Grantor and make sure you understand their wishes and exactly what your responsibilities as Custodian will be. If they haven’t reached out to you, get in touch to begin the discussion.

You should also consider creating (or updating) your own estate plan. With FreeWill’s free estate-planning tools, you can create your own last will and testament or revocable living trust in as little as 20 minutes — completely free.