My son turns 18 in two weeks--what next for the UTMA?

[VagabondMD]

My son will turn 18 in two weeks. He has a low six figure balance in his UTMA. The original plan was that this would be his second tier of funding for his college education, after the 529 and cash flow. At this point, his 529 plan (which I continue to fund) should cover about 80% of college expenses, and I hope to cash flow most of the rest, if not all. The UTMA money would be set aside for grad school, buying a first house, starting a business, etc.

Technically, what exactly happens to the UTMA when he turns 18? Yes, I know he can take out the money and buy a Corvette. But, really, does the titling of the account change? How does he access the money in two weeks--and ten years from now? For perspective, my father had a UTMA for me, to fund college and med school, and I received the last of the funds, through him, around the time I started residency (age 26). I was never given the keys to the kingdom, so to speak.

[jfoxcpacfp]

He will no longer be a minor so, technically speaking, the account should just be retitled in his name. For all practical purposes, it won't matter if you change the name or not - it's still his and he's still an adult. He can go to the bank, present his credentials (showing DOB) and access the money if he needs to.

I think one of my kids' UTMAs was titled that way until he was 22. I had to handle everything because he never changed it, but he could have. VG didn't ever check his DOB and ask us to fill out any paperwork. Don't know if it's any different now.

[Kamban]

Vagabond MD wrote:

My son will turn 18 in two weeks. He has a low six figure balance in his UTMA. The original plan was that this would be his second tier of funding for his college education, after the 529 and cash flow. At this point, his 529 plan (which I continue to fund) should cover about 80% of college expenses, and I hope to cash flow most of the rest, if not all. The UTMA money would be set aside for grad school, buying a first house, starting a business, etc.

Technically, what exactly happens to the UTMA when he turns 18? Yes, I know he can take out the money and buy a Corvette. But, really, does the titling of the account change? How does he access the money in two weeks–and ten years from now? For perspective, my father had a UTMA for me, to fund college and med school, and I received the last of the funds, through him, around the time I started residency (age 26). I was never given the keys to the kingdom, so to speak.

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Unfortunately you do not have any control on what your kid will do once he has that much money that he can use as he pleases.

I have UGMA for my daughter that we contribute 28K yearly, between my wife and I. It should swell to $250K by the time she is 18. I have tried to educate her about leaving it alone as her retirement account. I have told her that we will cover her education, car and help towards her 1st home. Hopefully she and her future spouse will adhere to it. I wish.

[YSH]

Is it possible to just not tell them (the children) about the money until they are much older? If they don't ask, don't tell? I don't know if that's an option but certainly feels like it would remove problem of access to use to money prematurely if they don't know it exists.

Would it be possible to incorporate the UTMA into the will only?

Curious because I will have this same issue later on.

[jfoxcpacfp]

Of course, you don't have to say anything until the child is an adult. Since your child will have to report the income on his own return, it will be hard to explain once he is an adult and filing tax returns, but you might be able to pull it off for a few years. I filed my kids' tax returns while they were in college.

Separately-owned property doesn't pass through your will. You could leave a letter of instructions as to what you'd like the money to be used for, but that's not enforceable.

[Craigy]

Vagabond MD wrote:

For perspective, my father had a UTMA for me, to fund college and med school, and I received the last of the funds, through him, around the time I started residency (age 26). I was never given the keys to the kingdom, so to speak.

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Because I imagine you never went asking for said keys.   

[Craigy]

Kamban wrote:

I have UGMA for my daughter that we contribute 28K yearly, between my wife and I. It should swell to $250K by the time she is 18. I have tried to educate her about leaving it alone as her retirement account. I have told her that we will cover her education, car and help towards her 1st home. Hopefully she and her future spouse will adhere to it. I wish.

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If she's smart, she'll leave it alone and let you keep raining money down on her.

However once the rain stops that's just cash like anything else.

[YSH]

jfoxcpacfp wrote:

Of course, you don’t have to say anything until the child is an adult. Since your child will have to report the income on his own return, it will be hard to explain once he is an adult and filing tax returns, but you might be able to pull it off for a few years. I filed my kids’ tax returns while they were in college.

Separately-owned property doesn’t pass through your will. You could leave a letter of instructions as to what you’d like the money to be used for, but that’s not enforceable.

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Aii...yes. I understand that part.  But not all UTMA funds need to be invested.  Only the income from interest and dividends/ gains (if any) need to be filed on the tax return.  Is that correct?

And yes, I get your about the separately-own property. I just thought, I won't tell them about it until the will.  Not as part of "inheritance" but more like notification.  Oh, btw......

But I suppose, the child will know once she has to file a FAFSA.

[jfoxcpacfp]

YSH wrote:

Aii…yes. I understand that part.  But not all UTMA funds need to be invested.  Only the income from interest and dividends/ gains (if any) need to be filed on the tax return.  Is that correct?

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You can do what you want with the money but it would be (imHo) foolish not to have it grow as much as possible, especially for a child, even though it will lead to disclosure.

[YSH]

jfoxcpacfp wrote:

YSH wrote:

Aii…yes. I understand that part.  But not all UTMA funds need to be invested.  Only the income from interest and dividends/ gains (if any) need to be filed on the tax return.  Is that correct? 

Click to expand…

You can do what you want with the money but it would be (imHo) foolish not to have it grow as much as possible, especially for a child, even though it will lead to disclosure.

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got it.   

[fasteddie911]

My spouse had a UTMA account she only found out about well into adulthood.  The account was setup with Fidelity and despite her paying taxes on the account she didn't truly have control of the account (making withdrawals, changing investments, etc.) until the custodian called or wrote a letter to Fidelity telling them to put the account completely under her name and control.  It was kind of annoying and somewhat awkward asking her parents for control over the account.

[Craigy]

Good article:

http://www.wsj.com/articles/SB10001424052702303789604579198004220788392