What is a UTMA Account?

If you have minor children, you may have heard of a UTMA account. UTMA stands for Uniform Transfer to Minors Act, and it governs how the money of a minor should be handled for the minor’s benefit. The UTMA permits the use of a UTMA account, which is a type of custodial account. The custodian of the UTMA account is charged with only using the money for the child’s best interests. So for instance, the custodian cannot withdraw the money and spend it on himself/herself. The minor, or another person bringing a suit on behalf of a minor, can bring a case against the custodian for violations of fiduciary duties and the custodian would be liable for repayment and further damages. The custodian is given some latitude in determining what is in the child’s best interests, but it must be within reason.

Pitfalls of a UTMA Account

A UTMA account is perfectly fine for small amounts of money. However, by operation of law the account is handed over to the minor upon the minor turning age 21 in Illinois. If there is a large amount of money in a UTMA account for the minor, you can imagine that the minor may not be able to handle significant amounts of money being given to him/her at age 21. Most people are not great with money at that age, and so it does not make sense to put a lot of money into a UTMA account if the money will be distributed outright to the minor at age 21.

Alternatives to a UTMA Account

Instead of using a UTMA account, or in addition to it, you can set up a 529 Plan if you want to leave a minor money for college. You can also create a trust for the minor so that if you were to pass away, your money would not go outright to the minor but instead be controlled by a trustee of your choosing, who can make sure the money is spent wisely for the minor child’s best interests. This is a preferable course of action because it ensures that the child cannot misspend the money while also ensuring that the minor child is taken care of financially.

Setting up a Plan for Minor Children

If you have minor children, it is important to put a plan in place to take care of them financially if you were to pass away. Setting up a UTMA account is only one step in the process. Ideally you should also have a trust that will fund a trust for your minor child upon your death. And if you have children with special needs, there are trusts known as Special Needs Trusts (SNT) that permit you to leave money to your child with special needs without jeopardizing his/her public benefits. See our blog post on special needs trusts here.

Call the Libertyville Trust Attorneys at Johnston Tomei Lenczycki & Goldberg LLC Today to Discuss a Plan for Your Minor Children

It is important to have an estate plan in place if you have minor children. You do not want money flowing directly into the hands of a minor child, but instead it should go to the child via a trust where a trustee of your choosing can take care of your child financially and responsibly. If you do not have a trust in place, or if you want to update your trust or have it reviewed, contact the Libertyville trust attorneys at Johnston Tomei Lenczycki & Goldberg LLC at (847)596-7494 to put a plan in place today.