An account under the Uniform Transfers to Minors Act (UTMA) is often created for the benefit of a child or grandchild to be used for his or her education. An UTMA Account is managed by the custodian for the beneficiary’s benefit until age 21 (in Illinois), at which time the balance is paid out to the beneficiary.
An alternative to the UTMA Account is a Gift Trust established for the benefit of one or more beneficiaries. A Gift Trust is an irrevocable instrument that allows you to maximize the annual and lifetime Gift Tax exemptions while maintaining control over the purposes for which such gifts may be used and also providing for the distribution of the balance at later ages.
Custodian
The creator of an UTMA account should not be the custodian of the account because, under the Internal Revenue Code, a creator/custodian is likely to be treated as the owner of such accounts for estate tax purposes.
Transfer of Existing UTMA Account to Trust
Under current law, the creator or custodian of an UTMA Account may not transfer the existing account to a trust unless such trust is a “qualified minor’s trust,” meaning that (a) the beneficiary of the UTMA Account is the sole beneficiary of the new trust and (b) the trust is to be paid out at age 21 to the beneficiary. However, one of the primary purposes of establishing a Gift Trust is to be able to provide distributions at later ages. Therefore, the best practice is to discuss the options with your Estate Planning attorney at the earliest stage and understand the benefits and purposes of such options.
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