An option might be to transfer the funds from an existing custodial account into a trust for the benefit of the minor or young adult, such that the recipient does not receive a significant lump sum until a later age, such as age 25 or 30 or beyond.

What is a UTMA trust account?

The most common trust for a minor is known as a custodial account (an UGMA or UTMA account). The Uniform Gift to Minors Act (UGMA) established a simple way for a minor to own securities without requiring the services of an attorney to prepare trust documents or the court appointment of a trustee.

Who pays tax on UTMA account?

Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. For some families, this savings can be significant. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate.

Can a custodial account be used as a trust account?

Custodial accounts can be thought of as a type of trust account, and are used to save money for children, their beneficiaries. These accounts are set up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).

Can You Move an UTMA account to a trust?

A Custodian may favor a Trust for the benefit of the UTMA Beneficiary, which Trust will not end on the Beneficiary’s 18th or 21st birthday. However, when the Beneficiary does not have unfettered access to the UMTA property after the termination age, the Custodian may have breached his or her fiduciary duty.

When does custodianship over an account end under UTMA?

Pursuant to UTMA law, when the custodianship over the account terminates depends on the date of creation. UTMA is only applicable to custodian accounts created on or after January 1, 1997. For accounts created on or before December 31, 1996, the applicable statute is The Uniform Gifts to Minors Act (UGMA).

Who is the custodian of a custodial account?

A custodial account is generally created by a parent or grandparent for the benefit of a minor child or grandchild. When you put money into a custodial account, you make a gift to the minor beneficiary of the account—even though the minor does not control the account. The account creator usually acts as the account’s custodian.