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What Are UTMA Accounts?

I've previously talked about how trusts can be an effective means of gifting or otherwise transferring property to a minor child who is not yet mature enough to manage it. When making this type of transfer, a well-drafted trust is usually the preferred method. However, not all such transfers are expected and a trust may not always be an option. Moreover, for smaller gifts the time and expense of drafting and administering a trust may be impractical. Fortunately, in these cases Florida law provides a default option that prevents minor children from having unfettered access to large sums of money.

The Uniform Transfers to Minors Act (UTMA) creates a custodial system for handling a minor's property that in some ways resembles the relationship between a trustee and a beneficiary. Custodians take title to property on behalf of a minor who is the equitable owner and maintain, manage and invest the property for that minor's benefit. The advantage to an UTMA custodial arrangement is that it can be established very easily. The disadvantage is that, unlike a trust that is governed by its own terms, a custodial arrangement is inflexibly governed by UTMA:

  • Only one custodian is permitted.
  • Custodianship automatically terminates at the age of 18 or 21, depending on the type of transfer, and cannot be extended.
  • Custodial funds cannot be earmarked for particular purposes.
  • Custodians may invest funds with reasonable care but cannot be limited on the type or nature of the investments.

Ultimately, a custodial fund under UTMA may be a viable alternative to a trust under some circumstances. However, a trust is usually preferable for the flexibility and control it allows. An experienced trusts attorney in Florida can determine which option is more appropriate to your circumstances.

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