The Uniform Transfers to Minors Act (“UTMA”) is an important estate planning tool to consider when a client has children or grandchildren who are minors. Under this statute, property of any kind can be transferred by way of gift, under the terms of a will or trust or by nominating a custodian to receive the property on behalf of the minor.
Let’s face it, minors are typically not mature enough regarding decisions about money. The concern being that if money is given to a child outright, it will be squandered or used for foolish purchases. In comes the UTMA statute which not only delays the receipt of the property, but it also allows the funds to be invested and is an easy way to gift money to a minor to take advantage of the annual gift tax exclusion which is currently $15,000 for 2018.
Under Pennsylvania’s UTMA statute, click here, the minor is automatically entitled to possession of any property transferred to him or her under this statute upon turning 21 years old. In some instances, if the property was given to the minor by nominating a custodian or by way of will or trust, receipt can be delayed further, however no later than the minor turning 25 years old.
Another advantage of the statute is its simplicity and low cost. Whether opening a custodial account, titling real estate in the name of a minor or bequeathing property, the person transferring the property simply needs to indicate that the transfer is being made in the name of or for the benefit of “[ minor’s name] under the Pennsylvania Uniform Transfers to Minors Act.” For many clients, transferring property to their child utilizing the UTMA statute may be the perfect, cost-effective tool.
Although this is simpler and less costly than creating a trust, there are drawbacks. A person who creates a trust can delay the minor’s receipt of the property to well past age 25. If a parent or grandparent is truly concerned about when the property will be received, then the UTMA statute may not be the right fit. In addition, the UTMA statute does not impose the strict fiduciary obligations imposed on a trustee – here a custodian simply needs to act as a “reasonably prudent person.”
All things considered, the UTMA statute can be a useful way to transfer wealth to a younger generation while ensuring that they will receive it at a more mature stage of life.