Making a gift to a minor? The Uniform Transfers to Minors Act may be the way to go.

Did you know that you can make a gift of property to a minor without needing to set up a trust?

While trusts are a great way to hold property for a minor, there are situations where a trust may be a bit of overkill, or sometimes a gift or bequest is made before a trust can be established.

Until a child turns eighteen, that child can’t own property in his or her own name.  If you want to leave something to a minor child in your will, or want to make some other gift to a minor, that property must be held by someone else–such as an adult or a fiduciary firm–that can legally own property.

A common way to make gifts or bequests to a minor is to establish a trust for him or her.  The person or firm holding the property is the “trustee” of the trust.  That trustee manages the trust assets and makes distributions for the benefit of the minor, who is the “beneficiary” of the trust.

While trusts are a great way to hold property for a minor, there are situations where a trust may be a bit of overkill, or sometimes a gift or bequest is made before a trust can be established.  Also, trusts can be expensive to set up and maintain.  As an alternative, the Uniform Transfers to Minors Act (“UTMA”) may be just the ticket.

To make a gift to a minor under UTMA, you designate a “custodian” who receives the property and safeguards it for the minor.  For purposes of UTMA, a “minor” is not always someone under age 18.  In Washington, when making a gift or bequest to an UTMA custodian, you can specify that the arrangement can last until the beneficiary reaches age 25.

The custodian of the UTMA can use the assets in the account for the “use and benefit” of the minor.  This is a very broad standard, and–unlike a trust–you can’t limit the uses to which an UTMA account can be used (e.g., education only).

So, how do you go about naming a custodian?  In Washington, a custodian can be designated in a number of written documents that transfer property to a minor.  These include a will, trust, deed, account titling, or beneficiary designation for a life insurance policy or retirement account.

An important place to look for UTMA as an option is on a beneficiary designation form for life insurance or a retirement account.  Naming an UTMA custodian is often an option for a beneficiary designation form, but you need to be sure that the form is filled out in a way that makes it clear that you intend the funds to go to a custodian and how long the UTMA should last.  Some companies will have an UTMA custodianship as the default option if you name a minor as a beneficiary, but many don’t.  Some forms have an “UTMA” box you can check to indicate that you want to use UTMA, but the surest way is to simply name the custodian as the beneficiary.  Washington statutes give some suggested language: “… as custodian for … (name of minor) under the Washington uniform transfers to minors act until age [up to age 25].”  Be careful to note that even if there is an UTMA box, that does not necessarily mean that the UTMA can continue until age 25, but, instead, it may have to be distributed when the beneficiary reaches age 18.  Also, the company may describe a “minor” as being someone who is under age 18, so the UTMA provision will not apply to, for example, someone who is age 19.

Although UTMAs are not as flexible as trusts can be, in many cases choosing an UTMA transfer makes sense as a simplified way to make a gift to a minor/young adult.