More on Gifting to Minors - Custodial Accounts


We recently posted a blog article on the choice between gifting to a 529 Plan or a Minor’s Gifting Trust. There is a third option – transferring assets to a custodial account for the benefit of a minor. In New Jersey and New York, these gifts would be made under the Uniform Transfers to Minors Act (“UTMA”).

A donor can create an UTMA account for the benefit of a minor beneficiary, and can gift annual exclusion gifts (or larger amounts which would then utilize a portion of the donor’s lifetime applicable exclusion amount). The account is owned by the minor and as a result the minor is the taxpayer. While the beneficiary is a minor, the designated custodian is in control of the account and makes all investment and distribution decisions. Unlike a 529 Plan, the growth inside the UTMA account is subject to income tax and distributions are not limited to higher education. Interestingly, if the custodian has a legal obligation to support the beneficiary, and the custodian dies while the beneficiary is a minor, the custodial account will be included in the custodian’s taxable estate.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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