UTMA Accounts for Minors: What Could Possibly Go Wrong?
If you are a member of the 99 percent, the ways in which your children and grandchildren could benefit from your gifts are obvious, and you don’t have much of a cushion with which to pay fees and taxes associated with these gifts. The annual gift tax exclusion is a godsend to people for whom a cash gift from their parents determines whether they will be able to afford anything beyond the barest necessities, as well as for retired people who do not want to see their generosity gobbled up by the IRS. If your younger relatives are college students, then everyone saves on taxes or interest if you make payments directly toward their tuition, but what do you do when your grandchildren are minors? The amount you can afford to save for their college education might not warrant a trust fund, and no one wants the stigma of being a trust fund baby, anyway. A UTMA account is an affordable way to save money for your young relatives to use in the future, and only in extraordinary circumstances can your good deed backfire. Contact a Hillsborough County estate planning lawyer about how UTMA accounts for your young relatives can fit into your estate plan.
The Uniform Transfers to Minors Act
The Uniform Transfers to Minors Act enables parents, grandparents, and other adults to set up custodial accounts with a minor as a beneficiary. The assets in a UTMA account are legally the property of the beneficiary, and the assets transfer to the beneficiary’s control when the beneficiary is a young adult. As the custodian of a UTMA account, you can close the account any time between the beneficiary’s 18th birthday and their 25th birthday, at which point the assets pass to the beneficiary.
When Grandpa Can’t Win
Irving’s story is a cautionary tale about UTMA accounts; he is a well-meaning grandfather who made a mistake with the money he saved for his grandchildren. When his granddaughters Kristina and Kimberly were born, he opened UTMA accounts for them. While the girls were minors, their parents divorced, and the court ordered their father to pay child support. Wanting to help his son and granddaughters, Irving withdrew money from the UTMA accounts and gave it to the girls’ father to pay toward child support for them. When Kristina and Kimberly turned 18, the UTMA accounts closed, and the girls found out that their grandfather had taken money from the accounts to help their father pay child support. This story ends with the girls suing their grandfather and the court ordering him to pay them damages. This situation could have been avoided if Irving and his son had asked a lawyer before taking money out of the accounts.
Contact an Attorney Today for Help
UTMA accounts are generally a good way to help your family while avoiding unnecessary expenses and stress, but it is still a good idea to consult a Tampa estate planning lawyer before opening the account. Contact David Toback for a consultation.