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Custodian accounts and Grandchildren: A good idea?

custodial accountsSome people like to cut corners. I guess there’s nothing wrong with that, but if you cut corners with your estate plan then you may leave yourself subject to unnecessary issues.

One corner that many people like to cut is opening UTMA and UGMA accounts for their grandchildren. While this may be a good idea in theory since it is easy and inexpensive, the repercussions     could be disastrous for you and your grandchild.

Custodian accounts, like UTMA and UGMA, are includible in your estate for estate tax purposes if you are both the donor of the funds in the account and the custodian at the time of your death.

Furthermore, these accounts are completed gifts at the time the funds are deposited. This means that your grandchild is the owner of the funds and while they cannot access the funds until  they reach the age of majority (18 years old in New York) it can be a countable asset when they are applying for financial aid for college.

And since the assets are owned by the grandchild, once the grandchild reaches the age of majority they can access the funds and do whatever they would like with it. Although we would like to believe that our grandchildren would be prudent with their money, there is no guarantee that an 18  year old will use the money wisely. The lack of supervision for the funds and protection from potential creditors could mean that the gift you so generously gave your grandchild could be lost once they reach 18 years old.

This is an Un-Safe Plan? Do you remember when you were 18 years of age?

One way to avoid these issues is to sit down with an estate planning attorney to create a Safe Plan with a “Safe Trusts“.

These trusts are tailored to your specific estate planning wishes and make sure that the assets you want to pass to the next generation are protected to meet your long-term goals.

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