|Posted on April 17, 2014 at 9:30 AM|
A person can make a lifetime gift of property to a minor, or make a bequest to a minor under a will or trust upon death, by means of a custodial account under Indiana’s Uniform Transfers To Minors Act (“UTMA”). A custodial account is similar to a trust. Both place property under the control of a person who does not own the account (a “custodian”, in the case of a custodial account, and a “trustee”, in the case of a trust), who manages the property for the benefit of a beneficiary. In the case of a custodial account, the custodian manages the property for the benefit of the minor.
Although a custodial account is similar to a trust, because it is created and governed by state statutes, and not by an instrument created by the donor, it differs from a traditional trust in several respects. Generally speaking, trusts are more detailed and flexible than a custodial account, and are better suited to transfers involving larger values. Custodial accounts are designed primarily for administering transfers of smaller amounts until the minor reaches the age of 21 without the expense of creating a written trust. Of course, what constitutes “larger” or “smaller” amounts is in the eye of the beholder, and will vary from person to person.
Practically any type of property (including stocks, bonds, and interests in real estate) may be transferred to a custodial account under UTMA. A transfer to a minor under UTMA requires the appointment and involvement of a custodian—an adult who will manage the property until the child reaches the age of 21, at which time the custodian must deliver the property to the beneficiary. The person transferring property to the child can act as custodian or name another adult to serve as custodian. Subject to the terms of UTMA, the custodian manages the property, and may pay or apply custodial property for the benefit of the minor beneficiary.
All transfers to a custodial account are irrevocable. A gift is legally complete when the property is transferred to a custodial account, not when the account terminates. The minor owns the property as soon as it is transferred to the account, even though the minor will not have control of the property until the minor turns 21. Thus, a donor can’t change his or her mind and take the property back. On the other hand, all income earned by the custodial property is taxed to the beneficiary, and not to the donor.
This post is brief overview of some of the features of custodial accounts. Consult with an experienced estate planning attorney to determine whether an UTMA account is the right vehicle for making a gift or bequest to a minor in your case.