Tag Archives: UTMA

Minor Child: Guardianship of the estate

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There are several choices available for giving property to a minor child.

You can set up a living trust.

You can name a custodian.

You can designate a guardian in your will.

These choices impact the age at which a minor child will inherit the property and who is in charge of the property until that time.

How can you leave assets to your minor or disabled children in a living trust?
How do you designate a custodian on beneficiary forms?
How do you designate a custodian in your will?
Can you designate yourself as a custodian on accounts while you are living?
How do you appoint someone to manage property on behalf of a minor child in your will?
What are the disadvantages of using a will to name a guardian of the estate for a minor child?

Living Trust

If you have a living trust, you can include instructions in your living trust establishing a new trust for your minor or disabled children when you die.

Q. How can you leave assets to your minor or disabled children in a living trust?
A. You can:

  • Specify what assets you want transferred to the trust to be used for the benefit of your minor or disabled children.
  • Name the trustee you want to manage these assets for your children, either an individual or a financial institution.
  • There is no requirement for the probate courts to be involved in the handling of a trust for your child.
  • Unlike state laws which give inherited probate property to minors when they reach age 18, your trust can include instructions about the age you want the children to inherit the property, e.g., one half at age 25 and the remainder at age 35.

If you become mentally incompetent, your living trust can give the trustee the right to manage trust assets for your minor or disabled children.

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Uniform Transfers to Minors Act custodian

A law known as the Uniform Transfers to Minors Act (UTMA) allows you to name an adult custodian to manage specific accounts that will be held for the benefit of a minor child until the minor child is considered an adult.  You can name a custodian in your will or on beneficiary forms.

Q. How do you designate a custodian on beneficiary forms?
A. If you want “John Jones,” your minor child, to get the proceeds of a life insurance policy, you would fill out the beneficiary designation like this: “Mike Smith, as custodian for John Jones under the Uniform Transfers to Minors Act.”  If you die or become incapacitated before John becomes an adult Mike, the designated custodian, manages the account until John reaches the age at which state law considers him to be an adult.

Q. How do you designate a custodian in your will?
A. In her will, Renee leaves $50,000 to her niece Allison Astor. Renee includes an UTMA clause as follows: “All property I leave by my will to Allison Astor shall be given to her mother, Kim Astor, as custodian for Allison Astor under the Uniform Transfer to Minors Act of California.”

No court process is required to approve the person named as custodian on a UTMA account.   State law determines what property can be owned in a custodial account.

Fact: Uniform Transfers to Minors Act
The Uniform Transfers to Minors Act has replaced the Uniform Gifts to Minors Act in many states, allowing nearly all types of property, including real estate, to be held in such an account.  Vermont and South Carolina have not adopted the UTMA.

Q. Can you designate yourself as a custodian on accounts while you are living?
A. You can set up banking accounts, checking accounts or brokerage accounts for a minor child or grandchild while you are living.  Since a minor child can’t own these accounts, you may designate yourself as the custodian of these accounts.

If you are considering setting up a custodial account while you are living, consider these facts:

  • Once you have deposited money into a checking account or bought stock in a brokerage account under the UTMA, the money or the stock belongs to the child.  You can’t take it back.
  • When the child is considered an adult by state law, (age 18 or 21, depending on the state ), the custodian must give the control of the assets to the minor child.  If there are significant assets, think about what someone who is 18 or 21 will do with them.
  • If your child dies before he or she becomes an adult, the assets will pass according to the UTMA laws of your state.  The beneficiaries may not be the ones you would have selected.

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Guardian of the estate designated in your will

If you have a will, you have the right to nominate a person as the guardian of the estate for your minor or disabled children.

Q. How do you appoint someone to manage property on behalf of a minor child in your will?
A.  When you die, the guardian will file papers with the court requesting approval of your nominee.  Once appointed by the courts, this person will assume financial control of the child’s bequest and manage it for the benefit of the child.

  • Most courts require the guardian of the estate to purchase a surety bond as part of the guardianship process.  This person can be an individual or a financial institution.
  • Most state laws terminate the guardianship of the estate when the minor becomes a legal adult (turns 18 or 21), at which time the funds are given over to the child.
  • The guardian will be required to file annual reports with the courts, which become public records and are available for public access.  The actions of the guardian may be subject to court review and may restrict how the guardian can use the funds for the benefit of a minor child.

Q. What are the disadvantages of using a will to name a guardian of the estate for a minor child?
A. When you name a minor child as a beneficiary, some states set limits on the amount of money a guardian of the estate can manage on behalf of a minor child.  If the amount of inheritance exceeds state limits, some states require a separate court procedure called a Conservatorship.  The conservator will be required to report on a regular basis how he manages and spends the child’s inheritance.   For a fee.

The court appointed conservator becomes responsible for deciding how to invest and spend the money on behalf of a minor child, not the guardian you named.   Their choices may be dictated by state statutes.

Using California as an example:

  • If a minor inherits $5K or less, his parent may hold the inheritance money and /or property in trust for the benefit of the minor until he or she reaches the age of 18.
  • If the minor inherits more than $5K but not more than $20K, the court has discretion to hold the money on any condition it determines to be in the best interest of the minor.
  • If a minor inherits more than $20K, the court may:
    • Order a guardian of the estate to be appointed so that the money is deposited with the guardian.
    • Order the money to be deposited in an insured account.
    • Order the money to be transferred in whole or in part to a custodian account in compliance with the California Uniform Transfers to Minor Account and order the money to be deposited with the county treasure. ibutton: Minor child inheritance rules diesmart.com/ibutton

If you don’t make a will, the probate court will appoint a guardian of the estate for your minor children.

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Guardian of the person: Minor child

A guardian of the person has day-to-day responsibility for your minor children, assuming the role of a substitute parent when you die.

Q. How is the guardian of the person appointed?
A.When you die, someone must petition the court to be appointed as the guardian of the person.  You have the right to nominate a guardian of the person to take care of your children when you die.  The court will normally defer to that person as the guardian of the person and the guardian of the estate.  However, other individuals have the right to petition the court to serve in these roles.  If this should happen, the court will examine who best will protect the interests of the minor(s) and appoint that person as guardian.

If you don’t nominate a guardian, the court will do it for you, according to state rules of preferences.  A surviving parent usually comes first, followed by grandparents, if neither parent is alive.

Fact: Surviving parent rights
If one parent dies, the surviving parent continues to have the right to take personal care of minor children.

When a divorced or single parent dies, the court generally appoints the surviving parent as guardian of the person for a minor or disabled child, even if the deceased parent would have been opposed to that.