UNIFORM LAWS U P D AT E Uniform Transfers to Minors Act Is Under Review The Uniform Transfers to Minors Act (UTMA) provides a simple way to transfer property to a custodial account for the benefit of a minor. It has been adopted in all 50 states, the District of Columbia, and the US Virgin Islands. The current version of the UTMA dates to 1983, when it was approved by the Uniform Law Commission (ULC) as an update to the predecessor Uniform Gifts to Minors Act. The ULC first approved the predecessor act in 1956, which was based on an earlier model act sponsored by the major stock exchange firms to allow gifts of stock to minor recipients. The UTMA expanded on these earlier acts by including more types of property and more methods of transferring the property. Custodial property is created by titling it in the name of an adult, followed by words like “as custodian for (name of minor) under the (name of enacting state) Uniform Transfers to Minors Act.” UTMA § 9. Property held in this form must be used for the benefit of the minor beneficiary. When the minor reaches a certain age (usually age 21, with exceptions addressed below), the custodian must transfer any remaining property to the minor. UTMA § 20. Uniform laws are reviewed periodically to determine whether the statutes are functioning as intended and whether courts have misconstrued the intended effect of any provision or attempted to fill gaps in the law. A ULC study committee is currently reviewing the UTMA and several non-uniform UTMA amendments that certain states Uniform Laws Update Editor: Benjamin Orzeske, Chief Counsel, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602.
Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.
have enacted over the past 40 years. The study committee will ultimately produce a report recommending whether the UTMA should be amended. So far, the committee has identified the following issues that could be addressed by amending the UTMA: Duration of Custodianship. Section 20 of the UTMA provides for the termination of custodianships at age 21 for property transferred to a minor as a gift, by the exercise of a power of appointment, or as directed in a will or trust. Custodianships funded with other transfers may terminate sooner. For example, the personal representative of a decedent’s intestate estate can set up a custodial account for a minor who inherits property through intestacy rather than ask the court to appoint a conservator. UTMA § 6. The custodianship option is more convenient and avoids administrative expenses. (The court must approve transfers of property with a value over a statutory maximum amount.) Recognizing this option as a substitute for conservatorship, however, the UTMA requires the custodianship to terminate at the age of majority, as a conservatorship would. In most states, the age of the legal majority is 18. Several states have amended their
UTMA statutes to allow for an extended duration of custodianships to age 25 and, in one state, age 30. Some states allow the transferor or custodian to extend the duration. Most of these states also included a temporary right for the minor beneficiary to compel distribution at age 21 to preserve federal tax benefits. Portability. Some states have adopted provisions that permit a custodian to transfer property from a custodial account to a qualified minor’s trust, which could provide professional management and better integration with the transferor’s other financial objectives. Some states allow transfers of custodial property to educational savings accounts under Internal Revenue Code Sections 529 and 529A, which were not yet available when the UTMA was last updated. Allowing these transfers gains certain tax advantages but also decreases flexibility by limiting the permitted uses of the funds. Making UTMA accounts more portable would likely benefit some minor beneficiaries, but custodians must carefully consider their fiduciary obligations and any potential account restrictions before initiating a transfer. Amending the UTMA to create safe harbors for these types of transfers under certain conditions could help nonprofessional custodians exercise their oversight responsibilities better. Successor Custodians. Section 18 of the UTMA provides rules for a transferor or a custodian to designate specific successor custodians. Some states have diverged from the uniform language in an apparent attempt to clarify the rules and assign priority when multiple parties designate a successor or when a party delegates the power. At least one case involving this issue has
Published in Probate & Property, Volume 37, No 5 © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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September/October 2023
