I’m willing to guess that your first question is, what are CUTMA and UGMA? They certainly sound like names for cavemen on TV. Actually, they are custodial accounts that you can set up for your child to help pay for educational expenses, such as college tuition, in the future.
The “C” is for California. The rest of the acronyms: laws known as the Uniform Gifts to Minors Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA) allow adults to transfer assets, such as cash or securities, to their (minor) children. Spoiler alert: These accounts ONLY make sense if you are financially comfortable enough to NOT be eligible for financial aid, and if your plan is to NOT apply for financial aid.
Many parents establish this type of account for their children early, looking ahead to the increasingly expensive realm of college educations. The money becomes available to the child when s/he reaches the legal age of majority. That’s the age of 18 in California. It is important to note that these accounts are not trusts. In fact the owners of the accounts, even if they are minors, must pay taxes on the assets in the accounts.
UTMA funds must be used for the benefit of the beneficiary (account owner) and may also be utilized to pay for such things as:
UGMA and UTMA accounts are similar as far as being managed by custodians, and in who may transfer assets. They do differ in some ways too. UTMA allows any asset, even real estate, to be transferred, while UGMA limits asset transfers to bank deposits, securities (including mutual funds), and insurance policies.
Suppose, years after you’ve established the account, your child decides not to go to college. What then? The assets in the account still belong to the child. A recent article in Forbes addresses the tax implications and strategies for using (and not using) UGMA accounts, based on your family’s financial status.
Family-centric issues such as these, especially with the financial implications, need not give you a headache. I’m here to help, with your CUTMA/UGMA questions and any other issues related to estate planning, with your family’s best interests in mind.
To set up a consultation, please contact us at 818.956.9200.
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