One of the simplest methods of gifting future generations is to establish a custodial account under your state’s version of the Uniform Gift to Minors Act or the Uniform Transfer to Minors Act. The primary purpose of these accounts is to allow gifts to be set aside for minor children who otherwise would not be legally allowed to own significant property.
With custodial accounts, you also have the ability to name someone else, including yourself to handle and assist with these gifted funds until the child comes of age. Most frequently, the age at which children receive these assets is 18 or 21, and it takes little to no work to set up these accounts. Local laws and standard provisions do apply but it is important to recognize that custodial accounts are potentially taxable to the child.
This could make the child’s income taxable at an even higher rate than their parents, depending on tax laws. One other potential disadvantage of these accounts to keep in mind is that once the child achieves the age listed on the custodial account, the account becomes theirs no matter what. This means that if you put aside a great deal of money, that child could inherit it as soon as 18 and you have no say over what they do with those funds. This can be of concern to some people who are worried about a young child’s ability to handle this level of money, so you may wish to work directly with an experienced estate planning lawyer to determine a more appropriate strategy.
A UTMA account is not your only option to support a grandchild, so make sure you discuss your interests with an knowledgeable lawyer in Michigan.