Rules Of UTMA Account

All one needs to know about rules of UTMA account

During these difficult financial times, desperate measures are never far away to the point that someone might think of tapping into the children’s college funds just to make things work. No matter how tough things may be, rules are rules and the UTMA, or the Uniform Transfer to Minors Act, have a few of its own. Before taking a look at the rules of UTMA account, understanding what it is, is of importance. It is a law that most States in the US has adopted that allows for the creation of a special account for a minor that will be managed on their behalf. Adults are typically the designated trustees, overseeing the assets for a certain period.

An UTMA account is an essential method of saving for the minor’s future educational needs and is usually set up by parents at an early stage of the child’s life. This can be beneficial to the parties involved because the tough economic times require that an individual be able to save all he, or she can while making the best of what is available in the market. Put to use wisely, such an account can be hugely beneficial at the end of the saving period with surplus money being available that can be directed to other uses. However, the rules of UTMA account can be an extremely stringent, and the preconditions attached to them are not a walk in the park. Dishonest and deceitful savers may be the whole reason behind this, while trying to avoid income tax and protect the fund for the minor at the same time. The penalties are severe should one not adhere to the rules of UTMA account.

Investments: UTMA accounts, which are also custodial accounts, allow an individual to invest in share certificates, savings bonds, stocks, mutual funds, cash. One can invest in any personal or real property unlike the Uniform Gift to Minors Act where real estate and artwork investing are out of the question.

Ownership: Once an individual has started such an account, they cannot change their mind because assets that have been put into a custodial account are irrevocable. In short, as soon as the transfer is made, ownership is transferred to the minor. This means that when the control of the account passes to the minor after the age stated in the law has lapsed the remaining assets in the account are to be passed on to the minor to use at their discretion. This age is normally between 18 – 25 years.

Financial aid eligibility: This transfer of assets’ ownership to the minor may restrict or lower the chances of eligibility into educational, financial aid program. This may include scholarships, grants or even student loans. This is because the current rules stipulate that, the minor should be able to put in 35% of their assets to cover for college expense annually, while parents put in only 5.6% for the same. However, one may qualify for a loan on a non-needs based financial aid.

In conclusion, the rules of UTMA account maybe a little harsh and one should be able to make a few considerations before deciding on which way to go. One should consider whether to keep the assets in their own name before opening such an account because hanging on to ones assets may be smart in case one may need money for their own use and might come in handy during hard financial times. On the other hand, if one gives large amounts to the trusts or if the minor has individual needs, the trusts tend to give an individual more flexibility and control.