The Uniform Transfer to Minors Act and the Uniform Gift to Minors Act are very popular college savings accounts. These allow grandparents and parents to create custodial accounts for a minor child, enabling the adult to make gifts to the account over time. The tax liability is then shifted to the child because the account is in their name, and in most cases the child is in a lower tax bracket. Gifts made to these accounts are irrevocable, but the giver of the gifts retains control of that money and determines how it will be invested.
You may have questions about which one of these is most appropriate for your estate planning goals. UTMA and UGMA accounts differ in the kinds of property that they allow a person to transfer. For example, a UTMA allows wider varieties of investments such as bonds, stocks, mutual funds, real estate, or even artwork. In some situations, however, UGMA investments can be limited to cash and certificates of deposit or life insurance.Â
Regardless of what you choose to create, it is beneficial to work with a Pasadena estate planning lawyer and ensure that the account is managed by someone other than the parent or grandparent. Otherwise, that parent or grandparent could still be responsible for taxes on the account income.
One thing to know is that the downside of these accounts is that the creator or custodian has to turn the money over to the child when they reach the age of 18 in California. This allows the child to then make decisions about what they want to do with those funds. For further consideration of other options to make gifts to children and grandchildren, communicate with our CA estate planning attorneys today.
