The California Uniform Transfers to Minors Act (“CUTMA”) is a modernization of the Uniform Gift to Minors Act, and became effective in 1985. A gift made pursuant to CUTMA is held in custodianship until age 18 unless the gift specifies a termination age beyond 18, but not over 25 years of age.
Most banks have easily created accounts for such gifts with the forms located in the branch or even on line, though a trip to the Bank is normally required to set up the account. The Banks normally have choices as to when the gift will vest outright to the minor. For example, the standard Bank of America UTMA accounts are for youths under 18 years of age and the youth does not have access to those funds until they reach the age of 18.
All types of property can be transferred under CUTMA. Most common gifts are cash, stocks or bonds. But you can also gift real property, jewelry, valuable family heirlooms or partnership interests. In addition, partial interests in joint tenancy or tenants in common can also be made. To make a gift, you record the title in the child's name as a gift under CUTMA and use the child's social security number. This is a simple and standard procedure for bank accounts, stocks, bond property and other recorded gifts. For gifts of personal property, a document stating the gift is being given pursuant to CUTMA and stating the name of the custodian is required.
The custodian can be any adult or trust company. An exception to this is if untitled tangible personal property is given the transferor cannot be the custodian. This limitation is put in place as a means of proving that a transfer has taken place. For example if a grandfather gifts a coin collection to his grandchild, he would probably name his child as the custodian of the collection and give him physical custody of it.
The custodian's duties are threefold: (1) taking control of the property, (2) registering or recording title if necessary, and (3) managing and investing it. The custodian has the ability to "deliver or pay to the minor or expend for the minor's benefit as much of the custodial property as the custodian considers advisable for the use and benefit of the minor."
The minor is treated as the owner of custodial property and therefore the income is taxed to the minor. For children over 13, this can lead to tax savings if the parents are in a higher tax bracket. The custodian can use the funds in his/her control to pay the taxes on the child's income.
A custodianship can also be created by intervivos gifts in a will or living trust. The custodianship in this situation cannot remain in effect past age 21.
The use of custodianship for gifts may reduce the estate and corresponding estate tax of the transferor. See our article on Wills and Trusts.
The use of a trust or a custodianship can help to achieve the goals of reducing an estate and controlling when a minor receives property. The use of a custodianship for smaller gifts is an alternative to keep the minor from having immediate access to cash or property and yet avoid the cost and formality of a trust.
The law imposes certain fiduciary and record keeping obligations on an UTMA/UGMA account custodian and requires that interest earnings are reported to the IRS under the minor's Social Security number.