Can we keep a child's money out of the hands of an irresponsible adult?

Question:

My husband named his 13-year-old daughter from a previous marriage as the sole beneficiary of his life insurance policy. He has also purchased savings bonds payable either to her or him, which are intended to cover her college expenses. Our concern is to safeguard against foolish spending by the girl's mother. Is there any way we can provide for this?

Answer:

Yes, there is a straightforward legal solution to your concern, at least in every state but South Carolina and Vermont. Your husband can name an adult to be custodian of the property under the Uniform Transfer to Minors Act (UTMA). He is free to name someone other than the girl's mom to dole out the property, even if the mother has custody of the girl. The person he chooses will manage the property for the benefit of the daughter until she turns an age from 18 to 25, depending on your state law. That way, his daughter's mother will never lay hands on the money.

In the two states that don't allow custodians, your husband might want to set up a child's trust to receive the insurance policy and the bonds at his death. He can still appoint a reliable adult to manage the money.