Lifetime Gifts to Minors - IN UTMA & Trusts

Question 1

Who is a minor under IN’s UTMA?

Answer 1

Anyone under age 21.

Question 2

What does UTMA stand for?

Answer 2

Uniform Transfers to Minors Act

Question 3

Under IN law, can a person under age 18 receive real and personal property?

Answer 3

Yes, but so long as the child is a minor, any contract by the child to make a further transfer of property in the child’s name is either voidable or subject to later disaffirmance by the child.

Question 4

How is property transferred to custiodial form for person less than 21 in IN?

Answer 4

by re-titling the property, or by executing and delivering a transfer document so that the new owner is identified in the form “__________________ [name of custodian] as custodian for __________________ [name of minor] under the Indiana Uniform Transfers to Minors Act.”

Question 5

Under the UTMA, how many people can be on a custodial account?

Answer 5

Only 2 - custodian and beneficiary. You can name successors.

Question 6

For gift tax purposes, what is the effect of a transfer to a custodial account under UTMA?

Answer 6

A transfer of property into custodial form under the UTMA is irrevocable and, for gift tax purposes, is a completed gift of a present interest by the transferor. See Rev. Rul. 59-357, 1959-2 CB 212.

Question 7

For income tax purposes, who is the owner of the custodial account?

Answer 7

For income tax purposes, the minor is the beneficial owner of the custodial property and all income earned by it. See I.C. § 30-2-8.5-27(e). A custodial arrangement under the UTMA is not a trust or a separate taxpayer for income tax purposes.

Question 8

When does UTMA custodial account end?

Answer 8

1) When custodian transfers it to minor (at age 21 or younger); 2) minor’s estate (if dies b/f 21); or 3) to a trustee of a minor’s trust under IRC section 2503(c)

Question 9

When can a minor request the UTMA asset?

Answer 9

Once the minor turns age 21, the custodian has an absolute obligation to transfer complete ownership of the custodial property to the minor.
A minor who is at least 14 can petition the court for a court order forcing distribution.

Question 10

Who is an adult under UTMA, and able to be a custodian?

Answer 10

21 years old.

Question 11

Can real property can be subject to UTMA custodian if not recorded?

Answer 11

Not effective unless recorded.

Question 12

Can a custodian under the UTMA be named as a beneficiary of “transfer-on-death” (TOD) assets under Indiana’s revised Transfer on Death Property Act (I.C. 32-17-14)?

Answer 12

A UTMA custodian (on behalf of a child) can be named as a TOD beneficiary.

Question 13

Can a UTMA custodian make a TOD beneficiary designation on a custodianship asset so that the custodianship is the “owner” for TOD purposes?

Answer 13

No. Per UTMA, (I.C. § 30-2-8.5-35(2), asset must be paid to the minor’s estate upon death.

Question 14

Why is use of UTMA not always a good idea?

Answer 14

Child must receive asset at age 21.

Question 15

Who can name the custodian?

Answer 15

The transferor of property can name the custodian in the document (such as a deed or bill of sale) that carries out the transfer of the property or in the document that registers the custodian as the new legal owner. (In most cases, transferor can be custodian, but check code.)

Question 16

Under UTMA, who can name custodian for transfers that are to take place at a later time (under will, trust, remainder interest in real estate, life insurance)?

Answer 16

The testator/settlor/grantor/owner can name initial custodian and one more successors.

Question 17

What if custodian wishes to resign?

Answer 17

He or she can appoint a successor custodian,
deliver the custodial property to him or her, and deliver written notice of the change to the minor if he or she is at least age 14 (I.C. § 30-2-8.5-33(c)). The same subsection allows the current custodian to designate a future successor custodian, whose appointment will not be effective until the current custodian later resigns, dies, becomes incapacitated, or is removed.

Question 18

What happens if there is no custodian (dies with no successor)?

Answer 18

1. Trustee or PR can name a successor;
2. Transferor can name a successor if future interest and has not taken effect yet.
3. If minor is 14, minor can designate an adult family member, a guardian, or a trust company
4. If minor under 14 or if over 14 y.o. minor fails to designate w/in 60 days, the minor’s guardian
   becomes the new custodian, and if there is NO guardian, any interested person (including the transferor and the representative of the transferor or the custodian) can petition the court to appoint a successor custodian

Question 19

What are the duties and powers of the Custodian?

Answer 19

• Under I.C. § 30-2-8.5-27(a), to collect, hold, manage, invest, and reinvest the custodial property;
• Under I.C. § 30-2-8.5-27(b), to follow the “prudent person” standard of care when investing or dealing with the property and to apply any special skills or expertise that the custodian has;
• Under I.C. § 30-2-8.5-27(d), to refrain from commingling the custodial property with other assets; and
• Under I.C. § 30-2-8.5-27(e), to keep adequate records of all transactions involving custodial property, including necessary income tax reporting information.

• the custodian has discretion to spend or distribute custodial property “for the use and benefit of the
minor,” including direct distributions or payments to the minor. The custodian need not seek court approval and is not required to consider the minor’s other resources or the duty of any person (including the custodian) to support the minor.

Question 20

Under UTMA, what are the minor’s rights in a custodial account?

Answer 20

In addition to the absolute right to receive full ownership and control of the assets upon reaching age 21, the minor has the following rights with respect to custodial property:

• Under I.C. § 30-2-8.5-33(f), to petition the court to remove a custodian for cause, to appoint a replacement custodian, or to require the custodian to post an appropriate bond;
• Under I.C. § 30-2-8.5-34(a), to petition the court to compel an accounting by the custodian;
• Under I.C. § 30-2-8.5-27(e), to inspect records of custodianship transactions at “reasonable intervals.”
• Under I.C. § 30-2-8.5-29(c), to petition the court to require the custodian to deliver specified custodial property to the minor or to spend custodial property for the minor’s benefit.

If 14, minor can do this herself; if younger, guardian, parent or PR (if dead) can do these.

Question 21

How does PR distribute an asset to custodian account?

Answer 21

If per will, follow will.
If no will term or intestate AND unsupervised, PR can distribute to UTMA custodial account, if consistent decedent’s “probable intent”.
If supervised, upon court order for an asset that exceeds $10,000.

Question 22

Does the Trustee have power to distribute to a UTMA custodial account, even if not a term of trust?

Answer 22

Yes.

Question 23

Can a guardian distribute to a UTMA custodial account?

Answer 23

Yes, if child upon age 18 OR to a 2503c trust with minor as sole beneficiary.

Question 24

Can you compel a non-PR or non-Trustee (such as a L/I co) to distribute a minor’s interest to a UMTA custodial account?

Answer 24

Yes, Ind. Code § 30-2-8.5-22

Question 25

How to get payor of assets that are distributable or payable directly to a non-adult child under the terms of a beneficiary designation an annuity contract, life insurance policy, or retirement account to pay to UTMA account?

Answer 25

Interested person should file a protective proceeding
for the non-adult child under I.C. § 29-3-4-1(e), to allege that the distributable assets are property that the child cannot safely manage on his or her own, and to ask the probate court to order distribution or payment of the assets to a UTMA custodial account (relying on subsection 29-3- 4-1(f)(1)) or to a newly created or existing trust for the child (relying on subsection (f)(4)).

Question 26

Can a custodian terminate a UTMA account before 21?

Answer 26

Yes, to a minor’s trust per 26 U.S.C. § 2503 and that has minor as only beneficiary.

Question 27

When is a gift to a minor a gift of present interest in property under Code section 2503(c)?

Answer 27

Gift to a trust/custodial acct for benefit of a person not yet 21 is NOT a gift of future interest if: 1) may be expended by or for the minor before age 21; 2) remaining balance will pass to child at age 21; and 3) if donee dies b/f 21, the asset will become part of his estate.

Question 28

Are UTMA gifts a “present interest in property” under 2503c?

Answer 28

Yes

Question 29

Is a UTMA account includable in the FET of a deceased parent who was custodian of the account?

Answer 29

Yes. So if this is a high net worth client, don’t let them be the custodian.