What Is CUTMA?
The California Uniform Transfers to Minors Act, or “CUTMA,” contained in the California Probate Code sections 3900 through 3925, is an alternative estate planning tool available in California to transfer any type of property to a minor. The property is transferred to an adult custodian entrusted with the management of the property for the minor’s benefit until the minor reaches 18 years of age unless the age for transfer is delayed up to age 25, or up to age 21 for lifetime gifts.
For instance, if Dad wants to donate $10,000 to Daughter, Dad can give that money to Uncle to manage and use for Daughter’s benefit until she turns 18. If Daughter is 13 at the time, then Uncle may use the money for various reasons for her benefit for the next five years. When Daughter turns 18, Uncle is required to transfer ownership of any remaining money to Daughter.
A CUTMA transfer can be established during your lifetime or after your passing by creating the transfer in your will, trust or a beneficiary designation. The typical advantages in using CUTMA are the ease of creation, no need for court involvement, and no requirement for a fiduciary accounting. It can be used to avoid the costs and delays of a court supervised guardianship of the estate, which also requires the property to be given to the minor at age 18. A CUTMA transfer also qualifies for the annual gift tax exclusion amount.
However, a CUTMA transfer is not always the best option. There can only be a single beneficiary and custodian. If you want each of your children to have property, you must establish separate accounts for each child. You also cannot provide specific instructions to the designated custodian such as how to use the funds or what investments to make. The custodian is free to spend the money without any court approval as long as it is used for the benefit of the minor. If the minor child’s unearned income gets too high, he or she may incur tax liability. Finally, a CUTMA account is treated as an asset for the minor for financial aid purposes, which may impact future requests for financial aid.
There are many alternatives to a CUTMA transfer. A typical alternative, with the most flexibility, is to create a trust for the child’s benefit. Although a CUTMA transfer is a simple tool to benefit a minor in California, everyone’s estate planning situation is different and requires an independent analysis of the specific facts and circumstances involved. [Disclaimer]
Our estate planning team at Naimish & Lewis can advise you on estate planning, trusts and estates administration, and probate related matters such as probate administration, conservatorship and guardianship. To schedule an initial consultation with an attorney at our firm, please contact us.