Posts Tagged ‘Uniform Transfers to Minors Act’

What Preparation Do I Need For My Son’s 18th Birthday?

APRIL 4, 2011 VOLUME 18 NUMBER 12
My son will be 18 in a little more than a year. He is in high school, in the special education program. What do I need to do to prepare for his eighteenth birthday?

Excellent question. Assuming it is limited to legal matters (those are the only ones we’re particularly good with), we have a number of things for you to consider:

Guardianship. You may need to seek a guardianship in order to maintain your ability to make medical decisions for your son. You will undoubtedly begin hearing from all sorts of concerned (and mostly well-informed) people about how difficult and expensive that process is, and how you need to get a head start on it. Relax. The news is mostly good.

Arizona, like a number of other states, gives family members the ability to make medical decisions for an incapacitated relative. Parents have a high priority under Arizona law. Of course, if you are no longer married to your son’s other parent, that can mean a conflict over who will be first. It may be perfectly obvious to you, but the law assumes you and your ex have equal rights until a court decides otherwise — and a childhood custody order does not resolve the question.

Assuming you get along with your ex, or you are still married to your son’s other parent, does that mean no guardianship is necessary? Not exactly. There are some circumstances where it still might be appropriate to seek guardianship; you will want to consult with a lawyer who knows something about guardianship to review the concerns and options.

Some parents go ahead and file for guardianship even if it may not be completely necessary. They reason that they want the security of knowing they have legal authority, and that is not a foolish mistake. Other parents reason that they want to maintain as much autonomy and self-determination for their children as possible, despite whatever limitations they might have. That is also not a foolish point of view. What does that mean? Every family circumstance is a little bit different, and good advice is needed.

If you do decide to file for guardianship, there probably is no rush. The Arizona legislature is right now considering changes that would allow you to file before your son turns 18, but until those changes are final (perhaps by September of this year) you can’t really file until after that anyway. The process will take about six weeks, and probably cost about $1,500 to $2,000 in legal and filing fees. That assumes, of course, that it is clear that your son needs a guardian, and that he doesn’t disagree.

One thing that would help with the decision-making process, and get everything going more quickly: get a letter from your son’s physician that indicates whether the doctor thinks he can make medical and personal decisions on his own. That letter will be necessary for the permanent hearing anyway, and it will help us counsel you on whether and how to proceed.

Child Support. Is there an old child support order requiring your ex to pay you monthly? Arizona permits child support to continue past age 18 if the child is disabled. You need to jump on this issue right away.

One caveat: child support (whether it is paid to you, directly to your son or to someone else on his behalf) will probably keep him from getting Supplemental Security Income (SSI) payments — unless you plan carefully. This is not a simple issue, and few divorce lawyers have dealt with the kind of planning necessary to keep child support and SSI both coming in. We need to talk about this one at some length.

Social Security. Is your son now receiving Supplemental Security Income (SSI) payments? If not, it may be because of your assets and income, which are imputed to him for eligibility purposes. If that is the case, your assets and income will no longer count once he turns 18. If he is “disabled” (and that’s different from “has a disability”) then it would be good to get that established and get SSI benefits flowing immediately.

Promptly after your son’s 18th birthday you should apply for SSI for him. If he gets it, he will automatically qualify for AHCCCS (Arizona’s Medicaid program). That will also help assure that he gets services from the Division of Developmental Disabilities (DDD) if his disability is developmental.

There are a number of things to keep in mind once your son’s SSI eligibility is set:

  • If he lives with you without paying rent (or paying toward the costs of his food and shelter), his SSI will be reduced by about $250 per moth (the number changes with the maximum SSI benefit rate). If that happens, you might consider charging rent as a way of increasing his benefit — but it won’t change his eligibility for AHCCCS.
  • In any event, it is important to get his disability established by Social Security before he turns 22. If you do, then he will probably qualify for dependents’ and survivors’ benefits under your Social Security account. That means that when either of his parents retires, his SSI may suddenly switch to Social Security (or a combination of Social Security and SSI) and he will qualify for Medicare coverage instead of (or in addition to) his AHCCCS coverage. Similiarly, upon the death of either parent his benefit will probably bump up again.
  • If you help your son secure employment, perhaps in a family business or other friendly and unchallenging environment, he may lose his future eligibility for Social Security benefits on your account. That might not be best for him long term. Same result if he marries — it can cut off his future dependents’ or survivors’ benefits.

Graduation. You may want to have your son graduate with his high school class. It is often a matter of pride and self-respect, and friends and family may have encouraged that perspective for years. Unfortunately, graduation might not be best for your son.

Programs offered through the school systems are often more appropriate, more easily available and better staffed than those offered to adult participants in DDD-sponsored programs. Usually students who have been identified as developmentally disabled can stay in high school until age 22; that is often in their best interests. You might talk to lawyers familiar with the local social service scene, and to parents of other children who have been through the graduation decision.

UTMA Accounts. Do you have an old Uniform Transfer to Minors Act account you (or maybe your parents) set up for your son years ago? It’s time to deal with that, too. The good news: you actually still have a couple years. Rather than ending at 18, they mostly end at age 21. But when that day arrives, the UTMA account will keep your son from receiving SSI benefits and maybe even AHCCCS. Let’s get that problem dealt with in advance.

Estate Planning. When your son was still a minor it was important that you sign a will identifying your choice for his guardian if you had died. Thank goodness you are going to make it to his majority — but the problem hasn’t gone away. You still need to do your own estate planning, or to update it if you have already done it.

Have you created a special needs trust to receive any share you intend to leave to him? Do you have life insurance, IRAs or retirement accounts, bank accounts or even real estate listing him as beneficiary? You need to get on this project right away — you are now almost two decades older than you were when you first thought about his future care.

Uniform Transfers to Minors Act Accounts in Arizona: A Primer

JANUARY 31, 2011 VOLUME 18 NUMBER 4
One question we are frequently asked: isn’t it a good idea to set aside money for a child or grandchild, and isn’t a UTMA (Uniform Transfers to Minors Act) account a simple way to do that? OK — that’s really two questions. Our answers: Yes, it is a good idea to set aside money. Yes, the UTMA account is a simple way to do it. Don’t set up a UTMA account, however, until you understand the consequences.

There are confusing issues about UTMA accounts. Sometimes the confusion is heightened by the fact that each of the 48 states which have adopted versions of the UTMA Act has changed it a little bit — so what is true in Arizona may not be true in another state (and vice versa). Rather than indulge in all that confusion, however, we are going to tell you in straightforward language what to watch for in Arizona. Be careful about applying these principles to other states’ UTMA acts.

First, the good news. Here are the positive things about Arizona UTMA accounts:

  1. They are inexpensive to set up and to administer. They do not require a lawyer, and avoid courts and formal accounting requirements altogether. All you have to do to create an Arizona UTMA account is to include the name of a custodian, the name of the beneficiary, and the letters UTMA in the title. This will work: “John Jones as custodian pursuant to the Arizona UTMA for the benefit of Marie Smith.”
  2. A UTMA account can simplify the gifting of substantial amounts of money by multiple family members. Set up an account for your 2-year-old, and all four grandparents can put $13,000 each into the account each year (using 2011 numbers — the maximum non-taxable gift may go up next year or in future years).
  3. They automatically end at 21, so the money will not be tied up indefinitely. One of the points of confusion: sometimes UTMA accounts end at 18 in other states, and in some circumstances in Arizona. But if you are putting your money into an account for a minor in Arizona, the end date is age 21.
  4. They encourage regular savings by simplifying the process. Open an account with, say, $1,000, and put $50/month into the account. You won’t save a fortune in 15 years, but you will have $10,000 that you wouldn’t otherwise have saved without this discipline. Plus the earnings and growth on the investment, as a bonus.
  5. If the minor receives public benefits like SSI or Medicaid, the money will usually not be treated as “available” (and therefore reduce or eliminate benefits) until age 21.

Of course it’s not all good news. Here are some problems or limitations:

  1. The money in the UTMA account will need to be reported on the minor’s FAFSA (Free Application for Federal Student Aid) form when applying for student aid — and it will be treated as completely available to the student. In other words, the very existence of a UTMA account may prevent receipt of needs-based student aid.
  2. The income in the UTMA will be taxed at the minor’s parents’ income tax rates. Unless, of course, there is so much money in the minor’s name that his or her rate is higher — then the UTMA account will be taxed at that higher rate.
  3. The minor may have to file an income tax return if the UTMA money produces significant income. The UTMA account may be used to pay any income tax due, and the tax preparation costs, but it will require that a return be prepared.
  4. At age 21 the (former) minor is entitled to receive all the money. Period. It doesn’t matter if he or she has become a drug addict, a spendthrift or a cult member.
  5. If the (former) minor receives public benefits like SSI or Medicaid, at age 21 the UTMA account becomes an “available” resource and may compromise those benefits.
  6. If the UTMA custodian is the parent of the minor (which is by far the most common arrangement), then there may be additional complications in how the money can be used and/or what tax effect the money might have. Since a parent has an obligation to support his or her minor children, the UTMA account generally can not be used by a parent/custodian in ways that reduce or satisfy that support obligation. If, on the other hand, the donor of the money acts as custodian, he or she may not have gotten the money out of his or her estate (which is usually one intention on the donor’s part).
  7. Although UTMA accounts are usually seen as simple mechanisms avoiding lawyers and conflict, the custodian still has an obligation to give the minor (or his or her guardian) account information. Thinking of giving a divorced and non-custodial parent money for the benefit of his or her minor child? Know that you are inviting a dispute between the custodial parent and the UTMA custodian over how the money is invested and spent (or not spent).
  8. What happens if the custodian dies or becomes incapacitated? There is no easy mechanism to select a successor custodian; it may require a court proceeding to name a successor. A fourteen-year-old minor may be able to select his or her own custodian, which could raise concerns for a thoughtful donor. (Note: Arizona law does allow the current custodian to name his or her own successor custodian, but few do. If you are planning on setting up a UTMA account, insist that the custodian select a successor.)
  9. What happens if the beneficiary dies before reaching age 21? The money goes to his or her estate — which may require a probate proceeding (if the total is over $50,000 in Arizona) and usually means that the money will be split between the child’s parents. That may be fine, but it may not be what the donor intends or wants.
  10. The effect of interstate proceedings is unclear. If you live in New Mexico and set up a UTMA account in an Arizona bank with an Arizona custodian for a minor who lives in Iowa, what happens when your custodian moves to Wisconsin? What courts might the custodian have to answer to, and whose law applies in the case of a disagreement? Fortunately, this problem seldom arises — there are few legal proceedings involving UTMA disputes. But they do happen, and increasingly so in an increasingly mobile society.

What are your alternatives to a UTMA account? Consider 529 plans for educational purposes, and separate trusts if the money is intended to be for more general use. For a child who earns income an IRA might even be an appropriate choice — if the child earns $3,000 in a given year, he or she can contribute up that amount to an IRA (and the source of the money does not have to be the earnings). Talk to your financial adviser and your lawyer about the cost of the various options, the problems they raise, and the best alternative in your circumstances.

UTMA Custodian Accountable After Beneficiary’s Majority

FEBRUARY 8 , 2010  VOLUME 17, NUMBER 4

A recent case out of Kentucky deals with a fairly arcane legal question, but it gives a chance to remind people about UTMA accounts and the rules governing them. The issue in that case: what duties does a UTMA custodian have to account to the minor beneficiary after he or she reaches the age of majority?

For the uninitiated, UTMA refers to the Uniform Transfers to Minors Act. It has been adopted in some form in forty-eight states (the holdouts: South Carolina and Vermont, both of which still rely on the earlier and similar Uniform Gifts to Minors Act, or UGMA). It basically creates a simplified statutory trust-like arrangement. Want to give money to a minor? Just pick a custodian and title the gift to “John Doe, Custodian under the UTMA for benefit of Janet Doe.” There’s not even any magic about those words — the most important thing is that the letters UTMA appear in the title.

When you create such an account the money does not belong to the named custodian, but to the minor beneficiary. Depending on the source of the money (and your state’s variant of the UTMA), the minor is entitled to receive the remaining funds at age 18 or 21. In the meantime the custodian, like a trustee of a trust, can decide to use the money for education, health or other benefits for the “minor” (remembering that the beneficiary can sometimes be over 18 but younger than 21).

That’s the arrangement Allyne M. Peter set up for her grandson Emil Peter IV back in 1983. She left over $83,000 in a UTMA account naming her son Emil Peter III as custodian. Over the years some of that money was distributed to her grandson, but in 2007 — years after he had turned 21 — Emil Peter IV decided his father hadn’t given him enough information so that he could figure out whether there should still be money in the account. So he sued his father to compel an accounting for the UTMA account.

Emil Peter III argued that the UTMA statute required such suits to be brought in a lower Kentucky court, and that his son’s suit should be dismissed. One problem with that: he also made clear that he thought the same statute required the beneficiary to still be a minor when he brought the suit, so his reading would leave his son with no court in which to challenge his father’s administration.

The issue in the Peter family dispute is arcane, and it would not arise in Arizona (because both kinds of suits would be brought in the same court). But it does give us a chance to reflect that the custodian of a UTMA account is much like a trustee in a number of ways. One similarity: both types of fiduciary must be prepared to account for the administration of the money they handle.

That was what the Kentucky Court of Appeals decided. Even though it might not be crystal clear whether the UTMA could be read as requiring that any suit be brought in the lower court, the possibility that neither court might have authority made the appellate judges determine that Emil Peter IV’s current proceeding should continue. Peter v. Schultz-Gibson, January 29, 2010.

The legal issue might seem arcane to non-lawyers, or to residents of states with only one choice of trial court for UTMA accounts, but it probably doesn’t feel all that arcane to Brandon Gould. That’s because last spring he brought a similar action against his grandmother in the New York Surrogate’s Court. The New York UTMA statute, like the Kentucky version, authorizes minors over the age of 14 (or a family member acting on their behalf) to bring an action in a lower court — in New York, the Surrogate’s Court. Brandon’s grandmother argued that because Brandon had turned 21 (the age of “majority” for New York’s UTMA law) several months before filing the action, he could not use the lower court. The New York Surrogate agreed and dismissed Brandon’s lawsuit — arguably the same fate that would have awaited Emil Peter IV if he had filed in the lower Kentucky court. In Re Gould, May 26, 2009.

The disposition of both Emil Peter IV’s and Brandon Gould’s lawsuits really beg the question. What is the accounting requirement under the UTMA statute?

The law itself does not provide much guidance (you can look at the truly “uniform” UTMA statute at the website of NCCUSL, the organization that promulgates uniform laws in the U.S.). Section 12 of the Act does require the custodian to “keep records of all transactions,” and to “make them available for inspection” by the minor or the minor’s parents or guardian. The part of the law disputed in the Peter and Gould cases, Section 19, permits a minor over age 14, a guardian or a family member to demand an accounting — but leaves ambiguous what rights the “minor” has after reaching the age of majority.

Still, it is clear that the custodian is a fiduciary and must use the money for the benefit of the minor. UTMA money may not be commingled with other money, income in the UTMA account should not be reported under the custodian’s Social Security number, and the custodian may not use UTMA money for his or her own benefit. One way or another, the minor can compel an accounting and release of the money when he or she reaches the appropriate age (18 or 21, depending on the state and circumstances).

An account set up under your state’s UTMA can be a streamlined, simplified way of giving (or leaving) money to a child, a grandchild or anyone else under age 21 (or, in some cases, 18). It can save time, cost and headaches associated with setting up a more formal trust arrangement, and it certainly makes tax preparation easier for the custodian (taxation simply flows to the minor beneficiary, with no separate return required for the account itself). Selection of the custodian is critical, however — you should choose someone who appreciates that the funds ultimately belong to the minor beneficiary, and must be turned over to him or her at the appropriate age, together with a complete accounting.

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