There are better ways of gifting property to your offspring than simply ‘handing it over’. Both irrevocable trusts and Uniform Transfers to Minors Act (UTMA) accounts offer you flexible ways of gifting property that would otherwise be unavailable, risky or extremely inconvenient. An irrevocable trust is established under the law of trusts, which is ultimately based on thousands of years of legal tradition. A UTMA is an account under the Maryland Uniform Transfers to Minors Act. Our attorneys have many years of experience creating both of these instruments.
How Irrevocable Trusts Work
You form an irrevocable trust by donating property to the trust (which could be cash, real estate, stocks, etc.) under a trust document that appoints a trustee, identifies the trust property, and outlines the terms of the trust. The trustee is then obligated to manage the property in accordance with the terms of the trust, both before and after you die. Your trust, for example, might provide your spendthrift daughter with a certain monthly income not to be exceeded.
How UTMA Accounts Work
You establish a UTMA account by setting up a custodial account with a brokerage firm. You must name a minor as the beneficiary and a responsible adult as the custodian. The assets of the account legally belong to your beneficiary as soon as the account is created; however, they cannot access the assets until they reach the age you specify, up to the age of 21 (the maximum UTMA distribution age permitted under Maryland law).
The Pros and Cons of Irrevocable Trusts and UTMA Accounts
Some of the benefits of setting up a UTMA account as opposed to an irrevocable trust:
- They are cheaper to establish
- They are cheaper to administer
- They are simpler to administer
Benefits of setting up an irrevocable trust instead of a UTMA account:
- You can restrict the distribution of trust funds to the beneficiary for an indefinite period ($1,000/month for the next 30 years, for example)
- The beneficiary does not have to be a minor
- You can name more than one beneficiary per trust
- You can name more than one trustee per trust
In general, a UTMA account becomes more attractive the less money you are willing to spend to establish and administer it, and the lower the value of the assets you intend to endow it with. Large fortunes are normally best administered under the terms of a trust.
We’ve Been Doing This for Decades
At Altman and Associates, we’re not a “jack of all trades” law firm like so many of our peers. Estate law is what we do. If you are considering an irrevocable trust or a UTMA account for your children, it is important to plan well and to act decisively before circumstances force your hand. Call us today at 301-468-3220, or fill out our online contact page, so that we can set up a consultation at one of our convenient office locations in Maryland, D.C., or Northern Virginia.