by Kate Maier, Central Planning, Wealth Enhancement Group

While figuring out their financial plans, many people want to ensure that their assets ultimately end up with their children or grandchildren. Such goals will periodically lead to assets being transferred to minors either during your lifetime or at death. When setting up a gifting or estate strategy, it is a good idea to consider the different avenues that can be used to transfer your assets to your minor children or grandchildren. Below is a brief description of some of the accounts that may be used (not including 529 or education IRA accounts, which are specific to education savings):

• Uniform Transfer to Minors Act (UTMA), is probably the most prevalent and cheapest account to set up for a minor, because they can be established at any bank or brokerage. A UTMA account is a custodial account rather than a trust, so any asset given to a UTMA is transferred to the custodian of the account for the benefit of the child and is irrevocable. Distributions from a UTMA must be made by the custodian only for the behalf of the child (education expenses are included), and the account becomes the child’s at the age of majority, either 18 or 21 depending on the state. Once the age of majority is reached, the child may do whatever he or she wants with the assets.
  
  
• Crummy Trusts are irrevocable trusts set up to benefit people of any age, but are popular to use for children. They tend to be more expensive to set up than UTMA accounts due to the need to have an attorney draft the trust document, but give the donor more say over how the assets given to the trust can be used and when they can be distributed. The catch to a Crummy trust is that the beneficiary of the trust – in this case the child or child’s guardian on behalf of the child – must have a window of 30-60 days to withdraw the asset after it has been gifted to the trust, and the beneficiary must be informed of this right every single time anything is added to the trust. Once the window has passed, the beneficiary is then bound by the terms of the trust.
  
  
• 2503(c) Minor’s trusts are irrevocable trusts designed to hold gifts in trust for a child until he or she reaches age 21. They work similarly to UTMA accounts except that the assets are held by a separate legal entity – the trust – rather than by a custodian. In addition, a 2503(c) trust can be combined with a Crummy trust so that it acts as a 2503(c) trust until the child reaches age 21 and then converts to a Crummy trust if the child does not take the money within the allotted window of time after reaching age 21.
  
  
• Irrevocable trusts give the donor the must flexibility when it comes to terms and distributions, however, since any gift made to an irrevocable trust is not a gift of present interest – a gift that can be accessed as soon as it is given – it does not qualify for the annual gift exclusion, currently $13,000. Due to this fact, this type of trust is most appropriate when set up in a will.

Each of the above accounts have their strengths and weaknesses, and it is important to learn their details in depth before you decide to open one for a minor. If you have any questions or would like more details, contact a Wealth Enhancement Group advisor.