Parents, grandparents, and anyone who was funded a UTMA account! Are you aware that once a minor of a UTMA account reaches the age of majority (18 most states), he or she has the absolute right to withdraw all assets without any strings attached? This article addresses a couple tricks that might help you address the too-often experienced UTMA regret.

Many are unaware or simply misled into the notion that the proceeds of a UTMA must be used by the child for school, or that the parents will have some semblance of control over the assets once the child reaches majority. However, they would be wrong. UTMA funds are the property of the child, period, and must be accessible by the child at the age of majority (usually 18, but differences do occur for each state). If assets are not accessible by the child, he or she can literally sue his or her parents to have immediate control of the funds.

UTMA accounts are often opened when the child is a cute, cuddly newborn, destined in the eyes of his or her parents for world of academia and beyond. While that child may still be en-route to a college education at the age of 18, he or she may simply not be fully financially mature to see the long view. What were savings, stocks, and bonds earmarked for a healthy and hearty education could literally be sold by the child, now adult, immediately at the age of 18 on a whim in order to fund a year or three saunter through Europe (or even better, Southeast Asia), in order to truly find themselves and their life path. While such a trip might truly be a valuable, life-changing endeavor, parents may simply not be keen on the idea of having such an excursion funded from their many, many hard-earned dollars.

So, what’s a parent to do?

1. Spend down the money before the child reaches the age of majority. The custodian of the UTMA account can spend the funds for the purpose of the child before the child reaches the age of majority as long as the funds are not spent on obligatory costs such as food, clothing, and shelter. For example, parents may wish to enroll the child in private school, or better yet, send them off to international education programs over summer to temporarily quench any anticipated future travel endeavors. However, what if the child gladly attends public school, there is no real interest in any program that would eat up the funds, or the assets are so substantial that there is sure to be a remaining balance in the UTMA account post college?

 

2. Talk to an Attorney and create a 2503(c) Irrevocable Trust. The custodian (at least in California) can create such a Trust whereby the child is the only beneficiary, and this can push the age to which the child can access the money to 21. These few extra years might just buy parents enough time to spend down the assets during the child’s college career for living and educational expenses. If it is anticipated that there will be money left over after all educational expenses, and the parents wish to push that age of 21 out even further, the child will have to more or less consent. Typically, the child can be presented with a 30 day notice give the child the right to withdraw all funds immediately. If the parents can persuade the child not to withdraw the funds, the Trust can continue on into the future with control of distributions remaining with the parents.

 

There are many ways to entice a 21-year-old into consenting to such an agreement, and parents should explore these methods with a qualified Attorney of their choosing should the 2503(c) Trust be right answer for them.