Part 2: Appointing a Property Manager and Custodianship under the UTMA
Since children under the age of 18 may not own property legally (beyond a minimal amount) it is necessary to appoint a “property manager” for your child in your estate planning. Unlike the naming of a personal guardian (discussed in the previous post), a court will not review your nomination since anyone has the right to dispose of his or her property in any way they see fit. In general, it makes sense to appoint as property manager the same person you named as the child’s personal guardian. This ensures that the person most involved in the child’s care is also the one determining how the child’s property will be used.
There are three basic options for choosing how to leave property to your child:
- A custodianship under the Uniform Transfers to Minors Act (UTMA)
- A trust, either individually for each child or combined in a “family pot” trust, or
- A property guardianship
This post will describe how custodianship under the UTMA works and the following post will describe trusts for minors and property guardianship.
The UTMA has been adopted by every state except South Carolina and Vermont and allows for a straightforward transfer of property to your child by will or living trust. Under the UTMA the child’s property manager is called a “custodian” and his or her management ends when the child reaches age 18 to 25, depending on the state.
To leave property under the UTMA, you can simply identify the property you wish to leave to your child (either in a will or living trust), name the child as the beneficiary, and name the adult custodian who will supervise the property until the child is of age. The custodian is entitled to reasonable compensation, which comes out of the gift property.
The UTMA gives broad discretion to the custodian and no court supervision is required. The custodian must keep records so that tax returns may be filed for the minor, but no separate tax return must be filed for the UTMA assets. In general, using the UTMA is most appropriate when the bequeathed property value is small and likely to be used up when the child reaches age 18 to 25. Often the assets in a UTMA will be completely consumed to pay for all or part of a college tuition.