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In the United States, the Uniform Transfer to Minors Act (UTMA) allows gifts of real and personal property to be given to minors, and eliminates the need to set up a trust. Under UTMA, a donor transfers assets, such as real estate or art, to a custodian for the benefit of a minor. UTMA is an extension of the Uniform Gifts to Minors Act (UGMA). UGMA regulates how gifts of cash, securities, life insurance, and annuities are transferred to minors.
The custodian controls, but does not own, the assets when property is transferred using UTMA. Control is passed to the minor when the child reaches the age of majority, usually either 18 or 21 years. In some states, the donor can indicate, in a will, that the transfer is not to be made until the minor reaches the age of 25. When the transfer is complete, the UTMA account is terminated.
The act allows for gift transfers to minors during the donor’s lifetime or at the donor’s death. When the custodian takes control of the assets, the custodian has a fiduciary responsibility to invest the assets appropriately and act in the best interest of the minor. The custodian decides the frequency and amount of payments to the minor.
The Internal Revenue Service (IRS) regulates how gains on UTMA assets are taxed. Generally, only a small amount of the gains are taxed, at the child’s tax rate, each year. Any remaining gains are taxed at the much higher parent or legal guardian’s tax rate. Part of the custodian’s role is to provide any information required to file the minor’s state and federal annual tax returns.
The custodian must also keep a record of all transactions. Since the custodian is essential, many times a successor custodian is named for each account. This will help protect the minor’s interest in case the original custodian dies or is unable to fulfill his or her duties as required.
Generally, all gifts are subject to IRS gift tax. Donors are allowed to gift up to a certain amount per year without paying this tax. Assets transferred under UTMA without the use of a trust follow this gift tax rule.
Students with UTMA accounts may be at a disadvantage if they apply for financial aid to pay for college. Since the student owns the account assets, the value must be included on any financial aid application. This can be an issue, since the account likely has real or personal property that cannot be easily sold to help cover college costs.
I am a Virginia resident who reached the age of majority on a UTMA account nine years ago. The custodial guardian of the account (also a VA resident) will not relinquish my funds to me.
I have two questions: one is how do I petition the court for the release of my funds. Also the custodial guardian is aware that I'm trying to find out how to get my funds released to me so I would also need to petition for an accounting of the funds.
Even though the custodial guardian is accountable to the IRS if the remove the money from my fund, I have great concern that will be her next move. Any assistance possible would be greatly appreciated.