Big changes took place last year regarding the Uniform Transfers to Minors Act (UTMA). If you have a will, you might have heard about them. Ohio made the decision to extend the UTMA up to age 25. Under this act you can use your will to decide when a young beneficiary no longer needs property management. The new change regarding this act has been adopted by each state. However, rules vary depending on the state. There are a few important things to know regarding the UTMA and its recent modifications.
Under the changes to the UTMA act, parents or guardians are given the flexibility and freedom to choose when they would like their child or beneficiary to receive gifts. The default age in Ohio has been 21 up until now (Ohio residents can choose between ages 18-25). The age ranges depending on which state you live in.
For some it can be an unsettling thought to leave inheritance with a teen. Some might be questioning, “Will they be mature enough to make smart decisions with the money? How can I teach them to save as much as possible, and not spend everything all at once? Who can I trust to guide them with the money or property they will be receiving?” When the beneficiary becomes of the age that you chose, he or she will receive the gift or property outright.
Age Must be Stated in the Will
In your will, you will have to clearly pronounce the age that you wish your beneficiary to receive the gift. If you do not clearly dictate an age, the state of Ohio will make 21 the age by default. As stated earlier, it depends on which state you are in. Some states allow you to choose between 18 to 25, just two ages or even a set age that is unchangeable. If you do not have a will, then the beneficiary will have control of the inheritance at the age of 18.
UTMA Accounts and Taxes
Under the UTMA, a custodial account is organized to hold cash, gifts, or property. This account is also known as the UTMA account and oversees the gift or property until your chosen beneficiary is of the age chosen for transfer. The UTMA account usually allows stock, bond, and mutual fund investment. According to the IRS, two of the following rules might affect the tax and reporting of the unearned income of certain children:
- If the child’s interest, dividends or other unearned income amounts to more than $2,100, part of that income may be subject to tax at the parent’s tax rate instead of the child or beneficiary’s tax rate.
- If the child’s only income is interest and dividend income and equals less than $10,500, the child’s parent may be able to elect to include that income on the parent’s return rather than file a return for the beneficiary or child.
If you want more control over the inheritance or gift you wish to leave your child or beneficiary, beyond the age of 25 or how the gift is disbursed in general, you can establish a trust. When it comes to your will and certain laws that may affect you, it can be confusing. If you have any questions regarding the Uniform Transfers to Minors Act, the professionals at Bodine Perry are here to help. Call 855-851-8318 or visit www.bodineperry.com for more information.