UTMA

Montana Uniform Transfers to Minors Act

Imagine this situation: you want to give money or property to a young person in Montana, but you aren’t crazy about the idea of them having complete control over the asset right now. Later in life, your grandchild will surely be responsible and able to handle major life decisions very well. But at 16 years old, giving that same grandchild a huge chunk of money may be asking for trouble. What do you do?

A great option is to use the Montana Uniform Transfers to Minors Act which automatically creates a trust and allows you to name a custodian who is responsible for caring for the property until the grandchild (or whoever else is receiving the property) is old enough to handle it appropriately. It applies to anyone making gifts to minors – whether they’re children, grandchildren, nieces, nephews, other relatives or even people of no relation. The important part is that you specify when you give the gift that it’s made under the Uniform Transfers to Minors Act (UTMA).

You’ve always been able to create trusts and appoint a trustee to manage the assets (the same way that a custodian does under the UTMA). But there are some drawbacks to this approach. First and foremost, it is much more complicated that the UTMA. Along with that complication tends to come a higher expense as well. Meeting with a lawyer, having him draft up a trust, executing the trust, and then taking the steps to transfer the appropriate property into the trust (not to mention making sure that everything that should be in the trust stays in the trust) is cumbersome and expensive. The UTMA allows you to avoid all of that and accomplish many of the same things quickly and easily.

So why would anyone do anything else? One drawback to the UTMA is that it does not allow for as much control as a traditional trust does. A major advantage of a trust is that you can specify as much as you want about how the property it to be managed and how it is to be distributed. Another important difference is time frame. The UTMA only lasts until the minor turns 21. At that point, anything left of the gift is given to them in full. So for example, if Grandpa Joe dies and leaves Charlie $200,000 in a UTMA account when Charlie is 15 – whatever is left of that account will be given to Charlie when he turns 21. If there’s $150,000 left in the account at that time, Charlie is about to be a 21 year old with $150,000 in his account and there’s very little that can be done about it. A traditional trust on the other hand can temper that by moving the age of distribution back, allowing for incremental distributions of it over time, or most any other option that you can think of.

The UTMA is great, but it’s not for everyone. If you’re interested, I’d suggesting talking to an attorney or estate planning specialist who can walk you through the benefits and drawbacks as they apply to your situation.