UTMA Account and UTMA rules | UGMA
UTMA Account: Choose A Method To Safeguard Your Child’s Property Now and In The Future
When you’re a parent of minor children, you may be concerned with what happens to your children should something happen to either you or your spouse or both of you at the same time. Thus, it’s important you do some estate planning to ensure your children’s futures. By having a plan, you’re able to leave property to your children legally.
You have three options at your disposal to leave property to your children:
- Property guardianship
- Trust – You can do an individual trust or a family pot trust
- Uniform Transfers to Minors Act, where you must use a custodianship.
A Look At The Uniform Transfers To Minors Act
With a living trust or will, you can use the Uniform Transfers to Minors Act (or UTMA). Nearly every state has adopted the law (South Carolina and Vermont have yet to do so), which is an easy, opportune way to leave your property to your children.
Under the UTMA account, the child’s adult property manager will be known as a custodian. You have every right to pick the adult you would like to be the custodian. Depending on your state’s law, the custodian’s management period may end when your child reaches either 18 or 25. This custodian will create a custodial account on behalf of the child under the UTMA rules. The type can be various such as financial planning for the college fund or gift giving out to the child.
When Should You Use An UTMA and How The UTMA Account Will Work For Your Child’s Interests
In the living trust or will, you lay out the details of the property you would like your children to have. Be sure you name the beneficiaries of a will to that specific gift. You’ll need to name your adult custodian who will take responsibility of the property until your child reaches the age in which he/she will take possession of it.
You’ll also need to compensate your custodian for the services he/she will provide in taking care of the property during this time. This tends to come from a gift property. Should, for whatever reason, your named custodian is unable to complete the job, you can name custodian successor to do the job instead. Under the UTMA rules you can invest in any type of real estate or personal properties.
Tax Returns and The UTMA
With the UTMA account, the custodian has broad discretion in controlling of how the property is used in the child’s interest. Plus, no court supervision will be provided. Since UTMAs are recognized by state law, the majority of financial institutions should have some knowledge about it so that the custodian has an easier time performing his/her her property management duties for your child. Separate tax returns will need to be filed for any UTMA assets so your custodian will need to keep meticulous records so these returns can be filed for the child on his/her behalf.
Keep in mind that the less valuable the property is, the more suitable a UTMA is. If the property will be utilized entirely before the child turns 18 or if it’s used for college, it would be in your best interest to use a UTMA. For instance, you decide to leave a gift of $50,000 to your child using the UTMA. Your state will award the property to your child when he/she turns 21 years of age.
For more valuable legal advice and related information, go to Legal Forms site, and you can find lots of free legal forms that can be downloaded for free, including how to modify will and related forms that you would want to reference when you create living will on your own.