Utma Account Rules Massachusetts -

Utma Account Rules Massachusetts

The cancellation age for UGGA and UTMA accounts is shown in the table below. Note that some states allow the transfer at a later date if it is indicated in the account title. For example, California allows the transfer to be deferred until age 25 if the trust bears the title of “guardian for (name of minor) until age (age for delivery of property to minors).” If the trust is not titled in this way, the age of termination of escrow remains 18. With EarlyBird, you can give money directly to a child`s account without having to give it to parents first to deposit on your behalf. You can even donate money through EarlyBird if the kids you`re saving for don`t already have an account. The big surprise that parents discover is that since the money in a UTMA account belongs to that child when the child turns 21, they can have unlimited access to that entire account without you having to supervise them further. Think about the future value of the account. One of my clients transferred shares to a UTMA account for his child, which was worth $6 million. When the child turned 21, he was entitled to the money under the state`s UTMA laws.

Unfortunately, the child was not able to manage the assets. One way to deal with this is to ask the child to transfer the property to an irrevocable trust for the benefit of the child. Another option is to go to court and ask the court to intervene and create a trust for the child or appoint a curator. An attractive feature of a UTMA account, also known as a “custodian account”, can be found in the tax treatment of the account. Assets held in a UTMA account are considered the property of the minor, so up to a certain amount of capital gains are not taxed (the amount fluctuates) and an equal amount is taxed at the child`s lower tax rate instead of the higher parental rate. After that, however, the additional income is taxed in the parents` marginal tax class. Don`t forget to file a donation tax return (if necessary). When creating a UTMA account, don`t forget to file a tax return if the donation amount is more than $15,000. It is not uncommon for clients to transfer a few hundred thousand dollars to UTMA accounts for children or grandchildren without filing a donation tax return. However, the problem is that every time you deposit money into this UTMA account, you are giving that child an irrevocable gift. An “irrevocable gift” is a gift that you cannot take back. You can be the custodian, but you transfer assets belonging to your child – the growth of income from this UTMA account is even taxed at the child`s tax rate.

You may be able to use the annual exclusion to donate to a UTMA account. However, you will need to speak with your estate planning lawyer to be sure the exclusion applies. If that account contains $40,000, $50,000 or even more, it may not be the result you`ve always wanted or wanted. I don`t know anything about other parents, but I don`t want my 21-year-old daughter to have unchecked access to thousands and thousands of dollars (no insult to my daughter, of course). In a custodial account, the adult who opens it is responsible, as custodian, for the management of funds, investments or assets. But everything on the account legally belongs to the minor beneficiary. Many parents create UTMA accounts for their children when they are young. In fact, do you raise your hand if you have created a UTMA custody account for your minor child? (UTMA, by the way, stands for Uniform Transfer to Minors Act under Chapter 201A of the Massachusetts General Acts.) For this reason, custodial accounts provide a great investment opportunity for adults to slowly build wealth for a child over time.

However, there are two different types of custodial accounts – and each type has its own rules. This means you can create a UTMA account in Florida and say you don`t want your beneficiary to receive the money from the account until they`re 24. But if the beneficiary decides they want to access the assets in the account as soon as they turn 21, there`s nothing you can do to stop them. While UTMA provides a way to create a tax-free savings account for minor children, assets are counted as part of the custodian`s taxable estate until the minor is taken over. I know many of you have done this because I see it all the time in my family law planning practice. And the question that always arises is: “when” can my child get the money from this deposit? Well, the answer is usually when he/she is 21. The administrator can sometimes choose between a selection of age groups. In Virginia, for example, the UTMA custodian can decide whether the beneficiary gets control of the account`s assets at age 18, 21, or 25. Before we dive into what a UTMA account can be used for, it`s worth quickly explaining what a UTMA account is.

If you want to leave or give assets to a child or grandchild, ask yourself if using a UTMA account or trust is the best option. Because there are so many factors to consider, you should consult your estate planning lawyer before making a decision. However, one of the main differences between using a UTMA account and a trust is that you have no control over how the assets are used by the beneficiary once they reach adulthood with a UTMA account. However, with a trust, you can use trust terms to determine how assets can be used both while the child is a minor and after the child reaches adulthood. In addition, a trust does not require that the assets remaining in the trust be paid simply because the beneficiary reaches adulthood. The extra control that an approval provides is one of the reasons why many people ultimately choose to create an approval instead of using a UTMA account. UTMA accounts take their name from the Uniform Minors Transfer Act (UTMA). Know the law of your state. UTMA laws in some states have kept pace with this trend to expand miners` access to assets.

Florida, for example, allows custodial property to remain in a UTMA account until the minor turns 25, as long as the person making the donation has expressed that intention. However, many states do not offer this flexibility. If the child at the specified age is unable to manage the funds, problems may arise. The main difference between an UGGA account and a UTMA account is the type of assets that each account can hold. The age at which the minor takes control of the custody account depends on the minor`s country of residence and whether the custody account was created as an UGGA or UTMA account. Starting in 2018, the IRS allows a donation tax exemption of up to $15,000 per person for an eligible gift, including gifts to minors. UTMA offers children a convenient way to save and invest without incurring the tax burden. The minor`s social security number is used for tax reporting purposes on UTMA accounts. It is also important to note that since the assets of a UTMA account belong to the minor, this can have a negative impact if the minor applies for financial aid or scholarships. We`ll dive a little deeper into the rules in a minute.

First, let`s talk about taxes. UTMAs were created as an easy way to hold money or other investments for a minor child, as minor children in Massachusetts cannot own assets or investments until age 18. UTMAs allow parents or grandparents to become custodians of these investments without having to consult a lawyer to create a more formal written escrow agreement for the child. You can go to the bank or call your financial planner and easily create a UTMA account by simply making a deposit or depositing money into a mutual fund. Second, UTMA is not available in all 50 states, especially South Carolina. Since not all states have chosen to ratify the referral law that created the UTMA account, it may not be available where you live. In contrast, UGGA accounts are available in all 50 states. Any income earned by an account that exceeds $2,200 is taxed at the parent`s highest rate. With a UTMA account, you appoint a guardian – often another family member – to keep the money for the minor until they reach a certain age.

For example, if you transfer $50,000 to a UTMA account for your grandson Billy and appoint Billy`s uncle as guardian, custody ends when Billy reaches a certain age and the money is distributed to Billy. Age is determined by the law of the state in which you set up the UTMA account. For example, in Massachusetts, if the property is given to Billy, he receives the money at the age of 21. In addition, as soon as little Billy reaches the age of 14, he can appeal to the Massachusetts Probate Court and ask the court to order his uncle to give him some of the money. The cancellation date for each is also different. While the termination of the UGMA is 18 years, the age of termination for UTMA is 21 years.