What to consider when leaving money to minors
When meeting with loved ones who have young children or relatives, we are often asked how they may effectively leave money to them.
Uniform Transfer to Minors Act
One tool commonly discussed for leaving assets to young individuals is a custodial UTMA account. UTMA is the Uniform Transfer to Minors Act. Whether you are a parent, grandparent, other relative, or friend, this account allows money to be held by a custodian for the minor’s benefit. A custodian’s power is generally broad enough to allow withdrawals for the minor’s benefit for legitimate expenses. This allows the custodian a high degree of discretion for using assets normally without court approval.
UTMA accounts are simple tools that can be effective to set aside smaller amounts of money for minors, however, in Maryland, any money held in a UTMA account that has not yet been used for the minor’s benefit MUST be distributed to the minor when he or she reaches twenty-one (21) years of age without further limitations. Do you remember yourself at 21? What would have happened if you were to inherit let’s say $100,000? Would you spend it responsibly and hopefully save most of it? With unfettered access to new-found wealth perhaps an immature individual would immediately decide to buy a new car (perhaps even a Ferrari)!
Trust: the UTMA alternative
Money left to a minor can instead be left to a Trust, which allows you to maintain a level of control and can be tailored to meet specific needs. Someone is appointed as a Trustee who has discretion to pay on behalf of the Trust beneficiary in accordance with the provisions of the Trust.
In a Trust, you may dictate specific uses of the contributed assets, specific events that entitle a loved one to distributions, as well as other conditions you deem appropriate. For example, you can limit distributions of the Trust to different ages of attainment (25, 30, etc.) or upon achievements, such as graduation from college or joining the military. Remember, when using a UTMA account your only option for distribution is outright at twenty-one (21) years of age. Trusts are preferred when substantial assets may be left to minors due to the looming fear that funds will be squandered due to immaturity.
Deciding which option is best for your situation should not be taken lightly. If you need help protecting your money and loved ones in the event of death or disability, call us at 301-696-0567 or self-schedule online at lenaclarklegal.com.
