Understanding The UTMA Account
In the majority of States, people under the age of 18 or, in some cases, 21 are not permitted to own various financial products such as stocks, bonds, real estate, fine art, patents, royalties and life insurance policies. The Uniform Transfer to Minors Act was formulated to allow for this. It has the added advantage in enabling the individual to inherit these assets in due course, without complications.
In the past, the older Uniform Gift to Minors Act - UTMA Account - enabled the transfer of assets to a minor without the need of an attorney to draw up the relevant documentation, or the appointment by the court of a trustee. This more recent act is somewhat more flexible because a wider variety of securities can be owned and the transfer happens more or less automatically via inheritance. Another difference is that the more recent type of trust tends to continue on to the age of 21, rather than ceasing at age 18, although there are variations from one State to another.
When considering making a gift to a minor, it is necessary to name a trustee who will act as the custodian. With the recipient's name and social security number, a trust is created and the donor permanently transfers his or her gift. The minor has become the owner of the assets at that point but the trustee maintains control over them until the age of trust termination is reached.
If the custodian is the legal guardian, the trust funds are part of their taxable revenue. In addition, since income from custodial accounts is taxable, the parent is required to file a tax return on the child's behalf. Special tax rules apply and the tax return must be signed by the child from the age of 14.
The custodian holds the trust and confidence of the beneficiary who, due to their age and lack of experience, is the vulnerable party. It is vital that the trustee acts at all times in the sole interest and benefit of the underage person. For these reasons, a person of the highest moral calibre must be chosen to perform this role.
The assets gifted cannot be returned. There is no way for the young person to gift money and so forth to the custodian or original donor. The trustee can however use the funds to help the minor, provided they themselves receive no personal benefit. Benefit that is considered a parental obligation is also prohibited.
When the minor is applying for financial aid, most commonly on beginning their college education, the assets held in custodial accounts are taken into consideration. It is possible to avoid this by transferring assets, which must be in the form of cash, to another account, called a section 529 plan. The custodian's responsibilities do not cease at that point and the minor named in the previous account remains the beneficiary.
In conclusion, the UTMA Account allows for the gifting of assets to minors. It should be noted that no special conditions can be placed on the use of the funds once the child reaches adulthood. There is therefore no guarantee that the money will be used for educational purposes.
In the past, the older Uniform Gift to Minors Act - UTMA Account - enabled the transfer of assets to a minor without the need of an attorney to draw up the relevant documentation, or the appointment by the court of a trustee. This more recent act is somewhat more flexible because a wider variety of securities can be owned and the transfer happens more or less automatically via inheritance. Another difference is that the more recent type of trust tends to continue on to the age of 21, rather than ceasing at age 18, although there are variations from one State to another.
When considering making a gift to a minor, it is necessary to name a trustee who will act as the custodian. With the recipient's name and social security number, a trust is created and the donor permanently transfers his or her gift. The minor has become the owner of the assets at that point but the trustee maintains control over them until the age of trust termination is reached.
If the custodian is the legal guardian, the trust funds are part of their taxable revenue. In addition, since income from custodial accounts is taxable, the parent is required to file a tax return on the child's behalf. Special tax rules apply and the tax return must be signed by the child from the age of 14.
The custodian holds the trust and confidence of the beneficiary who, due to their age and lack of experience, is the vulnerable party. It is vital that the trustee acts at all times in the sole interest and benefit of the underage person. For these reasons, a person of the highest moral calibre must be chosen to perform this role.
The assets gifted cannot be returned. There is no way for the young person to gift money and so forth to the custodian or original donor. The trustee can however use the funds to help the minor, provided they themselves receive no personal benefit. Benefit that is considered a parental obligation is also prohibited.
When the minor is applying for financial aid, most commonly on beginning their college education, the assets held in custodial accounts are taken into consideration. It is possible to avoid this by transferring assets, which must be in the form of cash, to another account, called a section 529 plan. The custodian's responsibilities do not cease at that point and the minor named in the previous account remains the beneficiary.
In conclusion, the UTMA Account allows for the gifting of assets to minors. It should be noted that no special conditions can be placed on the use of the funds once the child reaches adulthood. There is therefore no guarantee that the money will be used for educational purposes.