the basics
One of the best, and maybe the only, heads up a financial institution will ever provide for you occurs when you receive a notification that your child’s UTMA account must be closed. This means –ready or not- your child has financially come of age.Here are some basics about a UTMA (Uniform Transfer to Minors Act) account:
- A UTMA account is utilized to gift money and property to minors.
- There is a custodian of the account, many times the donor or appointed by the donor, who is in control of the account and acts on behalf of the child in managing the assets.
- When the child reaches the age of majority, which is 21 in most states, they have sole control of the assets.
- Upside:
- It is a savings vehicle this alone makes it a win.
- The major benefits are tax-related: the gift, up to an allowable amount, is tax-free and the earnings may be eligible to be taxed at a lower rate.
- Downside:
- All gifts into these accounts are irrevocable and the child will own the assets when they reach the age of majority.
- These funds are taken into account when the child applies for financial aid for college. (http://www.finaid.org/savings/ugma.phtml)
- Majority ≠ maturity: There are ways to sidestep or delay turning the money over to the child by utilizing trusts and 529 plans among other alternatives,.
This is a good news money talk. Your focus should be on how to effectively communicate with your child when the assets switch over.
