Andersen & Lee, P.C.

Uniform Transfers to Minors Act

UNIFORM TRANSFERS TO MINORS ACT

As you may be aware, a Will is only one part of your estate plan. When you draw or review your Will you need to also look at assets that would be distributed outside your Will, particularly assets payable to a named beneficiary such as life insurance and IRAs. You want to be sure that your beneficiary forms are up to date and accurately reflect your estate plan. It is important that you have a named beneficiary to your IRA as there are negative income tax consequences to having an IRA payable to your estate.

A question we are often asked is: what do I do if my intended beneficiary is a minor? Parents often want to list their children as the contingent beneficiary of their life insurance or IRA. This is an important consideration. Insurance companies will not pay a large sum to a minor. They would most likely require that a guardianship proceeding be started in Probate Court to insure that the minor’s funds are properly accounted for.

Often parents list a family member as the contingent beneficiary assuming that the person will use the funds on behalf of the minor children. This can be a very dangerous thing to do. That person would be under no legal obligation to use the money for the minor children and if he or she ran into financial difficulties, the money could go to their creditors

One way to avoid any complications is to use the Massachusetts Uniform Transfers to Minors Act to accomplish your goals. In your beneficiary form you would list an adult to act as "custodian" for the minor child or children. Under the Act the custodian then would have the right to collect the funds on behalf of the minor and then would have the obligation to manage and, if necessary, spend the funds on behalf of the minor. It is as if the Act sets up a Trust for your child’s assets. Any income would be reported on the minor’s income tax return. When the minor turns 21, the custodian turns the remaining assets over to the child. The custodian is also required to keep records of all transactions and to make them available for inspection by the parents or guardians of the minor and by the minor once he or she turns 14 years of age.

The Act is also helpful if someone wants to make a gift on behalf of a minor. A bank account or stock fund can be set up in the same manner. A grandparent or parent can list themselves as the custodian of the minor. Just remember, once the account is set up for the minor, the money can only be used on behalf of the minor. The gift cannot be undone.

The proper way to complete a beneficiary form or to set up an account would be: ( name of the person you want to act as custodian) as custodian for (name of minor) under the Massachusetts Uniform Transfers to Minors Act. You can also list substitute custodians in case for any reason the person you named first is unable to serve.

If you have any questions regarding this or any other estate planning issues, we would be pleased to meet with you and go over your plan.