401k Beneficiaries are Minors

HR in IL

Has anyone ever had to pay out a 401k to beneficiaries who were minors? Our EE died without a will, naming his children as his beneficiaries. The children's custodial parent is their mother. The EE was recently divorced from the mother. The mother wants the money to come to her and agrees it will be used for the children.

We have some concerns about this and know that the EE's brother will take on the responsibility of maintaining a "custodian investment account" for the beneficiaries.

Our 401k Administrator advises that, under Illinois law, the amount to be paid to the children is not large enough for them to "require" a court-appointed custodian. It is therefore up to the company to decide who to give the money to. They said whatever decision we make should be "in the best interest of the beneficiary."

Each child is eligible to receive 20,000+ which is not a huge sum, but still significant.

Any thoughts?

NaeNae55

Sounds like you are setting yourself up for a lawsuit whichever way you turn. It's time to call your lawyer. You need to make sure you dot all your i's and cross all your t's before you make a decision. Perhaps there is a 3rd party who could decide what is in the best interest of the children. That would let your plan off the hook and possibly save it thousands in legal fees.

sonny

I agree with Nae. I am wondering if going forward you could add something to your beneficiary form like In the event the beneficiaries are minors, please note an adult who would be custodian.

Library HR

I agree with Sonny but know additionally that EEs should be able to name a trust for their minor children. In this situation, your attorney may suggest creating a trust to pay the money to and asking the probate court to decide on a guardian. If the guardian named is a family member, they might not take the administrative fees that others would and a record of what the money was used for would be created. That should cover a lot of your legal issues, now and when the child is an adult but doesn't like what was done with his money, but do contact your attorney. Or the trust might exist intact until the child became an adult or college aged.

Still Need Coffee

I agree with the others - a trust account is probably the best way to go, but in any event you need to call your lawyer.