“UTMA” and Gifting to Minors
The Elder Law Minute TM
“UTMA” and Gifting to Minors
By Ronald A. Fatoullah, Esq. and Stacey Meshnick, Esq.
Parents and grandparents often want to make gifts to minor children and grandchildren. The Uniform Transfers to Minors Act (“UTMA”) allows any adult such as a parent or grandparent to establish custodial accounts for a minor child, into which money can be deposited as a gift. Any adult may make the gift and any adult or bank/trust company may act as custodian.
In 1996, the New York legislature enacted the UTMA, which replaces the Uniform Gift to Minors Act (“UGMA”). The UTMA applies to all irrevocable gifts made on or after January 1, 1997. The UGMA was repealed in 1997 and the provisions of the UTMA govern accounts established under either statute.
The custodian of the account may provide to the minor, or spend for the minor’s benefit, as much of the assets as the custodian considers advisable for the use and benefit of the minor. However, the minor has no control over the property until he or she reaches the age of majority, at which time the custodian must turn the money over to the child. The age of majority is 21 for all UTMA accounts in New York unless the donor/transferor stipulates the age of 18, and 18 for all UGMA (i.e. pre January 1, 1997) accounts in New York.
The account is titled in the name of the child, shifting the tax liability to the child, who is typically in a lower tax bracket than the adult parent/grandparent. For children, or students under age 24, income below $1,000 is not taxed, income from $1,000 through $2,000 is taxed at the child’s rate, and income over $2,000 is taxed at the rate of the adult who gifted the money to the child.
Once a gift is deposited into an UTMA account it is irrevocable. In other words, the money cannot be returned to the person who deposited the money. However, the adult gifting the money retains control of the money and decides how it will be invested for the benefit of the minor.
For financial aid purposes, custodial accounts are considered assets of the student and may, therefore, affect financial aid.
Any money in custodial accounts will be counted as part of the custodian’s taxable estate if the custodian is the legal guardian of the child and if the custodian dies before the child has reached the age of majority.
For children on SSI/Medicaid, UGMA/UTMA funds are disregarded when determining Medicaid eligibility. Disbursements from such accounts may be countable income to the child if they are used to make certain payments to third parties such as retailers and merchants for goods or services provided to the child.
When the minor reaches the age of majority, the funds become available to the child, which may affect his or her eligibility for government benefits. For grandparents establishing UTMA accounts for their grandchildren, the money is not an available asset to the grandparent should she/he ever apply for Medicaid benefits.
Remember that at age 21, the assets in the UTMA account are the child’s assets. This may become problematic if, at that time, the child experiences psychological, physical, or addiction issues.
It is important to speak with a knowledgeable attorney and financial advisor in order to consider all gifting options and their effect on planning.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Stacey Meshnick, Esq. is a senior staff attorney at the firm who has chaired the firm’s Medicaid department for over 15 years. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.