February 2018

What you need to know  about the Uniform Transfers to Minors Act

By Bernard A. Krooks, Certified Elder Law Attorney


Upon the birth of a child or grandchild, it is common for family members to want to make a gift to the newborn.  However, as a practical matter, a newborn or any minor for that matter, does not have the legal authority to enter into contracts, open financial accounts or otherwise manage money or property.  Thus, the need for UTMA accounts.


New York, like almost every other state, has adopted UTMA, which allows an adult to make a gift of property (or money) to a child without the child having to assume control of the property while he is still a minor.  UTMA replaced the Uniform Gifts to Minors Act in New York in 1997.  UTMA provides a simple, inexpensive means for someone to make a gift to a minor.  Under UTMA, a custodial account is established for the minor into which money can be deposited as a gift.  Any adult can make the gift, and any adult or bank or trust company chosen by the person making the gift can serve as custodian.  The duties of the custodian are somewhat similar to those of a trustee if you had created a trust.


Under the terms of UTMA accounts, the custodian invests or spends the money in the UTMA account for the benefit of the minor until the minor reaches the age of majority.  During this time period, the minor has no control over the property.  If the custodian is a parent of the minor, they are precluded from using the account for things they are supposed to provide (like housing, food and clothing).  For all UTMA accounts in New York, the age of majority is 21 unless the person making the gift stipulates age 18.  Thus, the use of the word “minor” in the UTMA law is somewhat misleading since the age of majority in New York for most other purposes is 18.  That is the age at which an individual is legally considered an adult in New York.


One of the benefits of an UTMA account is that you don’t need a lawyer to set one up.  UTMA accounts are very common in the financial community and easy to set up.   There is no need to hire a lawyer to draft a trust, or any other legal document, to hold the gifted property for the minor using an UTMA account.   However, keep in mind that when you put money in an UTMA account, it is a completed gift to the named minor.  You have given up all rights to the money, as completely as if you had handed cash to the minor.  Moreover, when the beneficiary of an UTMA account turns 21, the custodian must turn the account over to him. That is not an option; it is mandatory.  The custodian does not get to decide that the (former) minor is unable to handle money.  Of course, the beneficiary could agree to let the (former) custodian continue to manage the account if they are willing.  For many, a trust is a better option since the trustee can continue to hold and manage the funds after the minor reaches age 21.  After all, think about what you would have spent money on when you were 21 if the money were available.  By placing the funds in a properly drafted trust you can control the disposition of those funds both during the time period that the child is a minor and after he becomes an adult.


Also, you should be aware that UTMA accounts are taken into account if the beneficiary applies for college financial aid or loans; whereas, trust assets may not considered to be an asset of the minor.  Moreover, if the beneficiary is, or becomes, disabled, the UTMA account could preclude him from qualifying for much-needed government benefits at some point.  A properly drafted special needs trust would protect those assets for the individual and allow the beneficiary to qualify for means-tested government benefits.  The trust could then be used to pay for things that would improve the quality of life of the individual with disabilities.


Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven year, past President of the National Academy of Elder Law Attorneys (NAELA), past President of the New York Chapter of NAELA and also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Call 914-684-2100 or visit elderlawnewyork.com.



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