Utma Account Rules Pennsylvania

The Pennsylvania Uniform Transfers to Minors Act (sometimes known as PAUTMA or UTMA or formerly known as the Pennsylvania Uniform Gifts to Minors Act or PUGMA) can be found at 20 Pa.C.S.A. § 5301 et seq. · UTMA has sometimes been called the “grandfather” of college savings accounts. It allows parents to create custody accounts for a minor child, and a grandparent can then make gifts to the account. Since the account is in the child`s name, the tax payable is often transferred to the child, who is likely in a lower tax bracket than the grandparents or parents of the grandchild. Donations to such accounts are irrevocable, but the donor retains control of the money and decides how it is invested. We now have Werner v. Werner, a panel decision issued in early October. The Werners adopted two children and, in happier times, funded UTMA accounts for each child. In 2009, they separated. It is obvious that for almost all couples, physical separation is an economic burden.

It is also true that most parents are of the opinion that innocent children should not give up because their parents have decided to separate, so we have children who have a life expectancy, coupled with parents who face economic hardship caused by the need to now finance two houses and an unlabeled pot of money, that could “bridge the gap”. The account must be managed by someone other than the parent account. Otherwise, the parent is responsible for the income tax of the account. For children or students under the age of 24, income under $950 is not taxed, income from $950 to $1,900 is taxed at the child rate, and income over $1,900 is taxed at the grandparent rate (2013 figures). Typically, UTMA accounts are set up with sums of money that should be fully or widely used by the time the child reaches the age of majority (21). If grandparents want to give bigger gifts that they want to protect beyond the age of 21, irrevocable trust is a better and more flexible solution. The creator of an irrevocable trust has the option of appointing a trustee to manage the assets for a grandchild, until such age as he or she deems appropriate. In addition, they may be able to use the irrevocable trust to ensure long-term divorce and protection of the grandchild`s assets. The age of termination of the UGMA and UTMA accounts is shown in the following table. Note that some states allow the transfer later if it is indicated in the account header.

For example, California allows the transfer to be delayed until age 25 if the trust holds the title of “custodian of (minor`s name) until age (age of delivery of property to minors)”. If the trust is not titled in this way, the age of termination of the trust remains 18 years. The children appealed and claimed lawyers` fees under Article 5319 of the UTMA or Article 2503 (7) of the Judicial Code (Title 42). The mother replied that she had not behaved inappropriately. The trial court refused to pay the court fees because the mother`s conduct was not scandalous. The Supreme Court agreed, adding that while the mother`s legal positions were not laudable, they were not “legally untenable.” The fact that the $250,000 UTMA account was upgraded by 15% per year from 2010 to 2015 was heard from the decision. Of course, the money of an S&P index fund would have doubled in the corresponding period. There are other “gift” programs that have the specific purpose of covering the costs of studying from secondary school to higher education. Some allow a change of beneficiary, which is not possible with a PUTMA. Others penalize you for withdrawals.

A relatively new option is a “qualified state curriculum” that challenges the contributor to the exclusion of federal gift tax. Neither the donor nor the beneficiary earns taxable income when investing contributions. This option has important limitations. Another alternative is the “education-specific pension account”, which, like the qualified state curriculum, must be used exclusively for education. A significant disadvantage of this plan is that the annual contribution limit is capped at $500.00. But you say that $13,000 is a lot of money you can give to a child, not to mention $26,000. You are right. There is a big difference between giving your 16-year-old grandson $50 and giving him $13,000 or $26,000. Small amounts can be used to spend money, or maybe your grandson will store some of it in a bank account. But you don`t want to give $13,000 to your 16-year-old grandson.

If you`re serious about reducing your estate, you should take advantage of this annual exclusion from gift tax by giving donations every year, and those amounts add up. (As Everett Dirkson may have said, “A billion here, a billion there, very soon, you`re talking about real money.” The biggest disadvantage of these accounts is that administrators have to give the money to the child when he or she reaches the age of majority (21 in Pennsylvania). When the child reaches the age of 21, he or she has the legal right to access the assets remaining in the account without restriction. He or she can then do whatever he or she wants with the money – and that may not be what you prefer. In addition, the child`s sudden possession of the account funds, as in the case of custodial accounts, could jeopardize the child`s eligibility for university financial aid. The donor selects the custodian bank when the UTMA transfer takes place. Any adult can be a guardian. The donor should not claim to be a custodian, as he does not withdraw the assets from his estate because he has retained control of the distribution of the depositary`s funds. The UTMA account uses the minor`s social security number. How do I open a UTMA account? Any bank account, stock certificate, mutual fund account or other property may be designated as a custodian under the Pennsylvania Uniform Transfer to Minors Act (PUTMA) in favor of Suzy Q. Public.

Don`t forget to use the child`s Social Security number on the account. The UTMA PA allows for a variety of investments, including mutual funds, stocks, bonds, real estate – even works of art. Banking institutions and brokerage firms offer UTMA accounts. This wide range of investment opportunities gives grandparents a lot of flexibility to determine what types of investments are appropriate, depending on the age of the grandchild and their proximity to the use of gifted assets for college or other expenses. Federal law also treats UTMA accounts favorably under donation tax laws. The Internal Revenue Code imposes a tax on donations of property that are not covered by an exclusion or exemption. Each year, each person can give $13,000 to another person without taxing donations. This is called the annual exclusion.

This amount can be doubled ($26,000) if the donation is given by the spouses who agree to treat half of the donation as it was made by each of them. .