Post by Admin/YBB on Jan 18, 2021 5:52:00 GMT -6
UTMA is Uniform Transfer to Minors Act; it has superseded the older UGMA. The UTMA accounts at brokers, funds, banks are custodial accounts with MINORS as beneficiaries. Minor’s Social Security number is used to establish them & a parent [or another family member] may serve as CUSTODIAN/ trustee. A SUCCESSOR should also be named as the other parent is not presumed to be the successor unless so named. These offer limited TAX ADVANTAGES as earnings up to a certain level can use minors’ deductions & lower tax rates; they are taxed at parent’s tax rate beyond those levels [KIDDIE TAX rules; for 2018-19, estate/trust rates were used instead of parent’s rate]. Contributions up to the ANNUAL GIFT LIMIT [cumulative per beneficiary from one person] can be made easily; excess contributions require filing of gift tax form 709 [to keeps track of excess gifts that will reduce lifetime gift exclusion at death]; importantly, no gift taxes are due. Funds can be used for the benefit of beneficiary beyond the normal parental support for the dependent minor.
The UTMA beneficiary cannot be changed. The UTMA assets are considered beneficiary’s assets for FINANCIAL AID purposes. Once the beneficiary reaches the age of MAJORITY [18-21-25; varies by state], then the assets belong to the beneficiary & he/ she may use the funds for any purpose whatsoever; beneficiary also gains some say-so at age 14. Some funds/ brokers have in-house procedures for these OWNERSHIP CONVERSIONS. It is a mistake for the custodian to delay this conversion by hiding the UTMA from beneficiary &/or being nonresponsive to fund/ brokers prompts. At one time, UTMA were very popular for college savings but now 529s are more effective [better tax advantages; not taxed for qualified college expenses; possible state tax incentives; parental 529 assets considered parents’ assets for financial aid purposes; better control]. However, both 529 & UTMA may be used with different objectives. The UTMA assets can be transferred to a specially titled 529 [but reverse is not allowed]; its beneficiary cannot be changed as for regular 529. #PersonalFinance ,1/18/21.
The UTMA beneficiary cannot be changed. The UTMA assets are considered beneficiary’s assets for FINANCIAL AID purposes. Once the beneficiary reaches the age of MAJORITY [18-21-25; varies by state], then the assets belong to the beneficiary & he/ she may use the funds for any purpose whatsoever; beneficiary also gains some say-so at age 14. Some funds/ brokers have in-house procedures for these OWNERSHIP CONVERSIONS. It is a mistake for the custodian to delay this conversion by hiding the UTMA from beneficiary &/or being nonresponsive to fund/ brokers prompts. At one time, UTMA were very popular for college savings but now 529s are more effective [better tax advantages; not taxed for qualified college expenses; possible state tax incentives; parental 529 assets considered parents’ assets for financial aid purposes; better control]. However, both 529 & UTMA may be used with different objectives. The UTMA assets can be transferred to a specially titled 529 [but reverse is not allowed]; its beneficiary cannot be changed as for regular 529. #PersonalFinance ,1/18/21.